01, Significant Appreciation of the Chinese Yuan
On Friday, the exchange rate of the Chinese yuan against the US dollar reached a peak of 7.0052 during trading, just a hair's breadth away from breaking through the 7.0 mark and returning to the sixes, but this is also an inevitable trend for the future.
For the yuan, this is merely a process of value return.
In the past, during the process of the yuan's devaluation against the US dollar, I have already pointed out that the yuan only depreciated against the US dollar, while its exchange rate against other major currencies remained relatively stable; and the depreciation against the US dollar was not based on the economy, but more so on the basis of US interest rate hikes.
02, Short-term Factors
In the short term, the decline of the US dollar index is the main influencing factor for the appreciation of the yuan exchange rate.
However, the six major currencies pegged to the US dollar index do not include the yuan. In other words, the appreciation of the yuan against the US dollar is not a one-to-one relationship with the decline of the US dollar index.
For example, last week the US dollar index fell by 1.47%. It dropped from 106 at the close of the previous week to the latest 104.5.
However, the appreciation of the yuan was significantly greater. It appreciated by 2.4% against the US dollar this week, rising from 7.19 at last week's close to the current 7.02.
This week, the yuan exchange rate reached its lowest point at 7.2594 and its highest point was close to 7.0, nearly appreciating by 2600 pips.So, in this wave of appreciation, the Chinese yuan's performance is stronger than that of the Japanese yen, the euro, the British pound, and the average increase of these six major currencies is not as much as that of the Chinese yuan.
03, Trade Surplus
In fact, looking at some data published by our country, the foreign exchange market is still operating steadily.
The surplus of the current account in the first three quarters reached 310 billion US dollars, which is a 56% increase compared to last year. The trade surplus in goods reached 645.2 billion US dollars, a significant increase of 52%.
This indicates that under the influence of the pandemic, and at the same time with high inflation in Western countries and shrinking demand, our country's trade in goods and commodities still made very considerable progress.
On the other hand, it also shows that the large proportion of the expanded surplus has led to a continuous inflow of foreign exchange funds. The supply of foreign exchange is very abundant, which will inevitably support the stability of the foreign exchange market in the medium to long term.
Moreover, the aforementioned surplus of 645.2 billion US dollars is just the figure for the first three quarters, and this number is still increasing, as is the inflow of foreign exchange.
04, Inflow of Foreign Capital
The rebound in the exchange rate during this period has already shown that foreign capital has made a clear预判 of the continuous and stable recovery and improvement of our country's economy in the coming period.
In fact, since the middle of the year, most of our country's policies to stabilize the economy have gradually been implemented and reflected in economic data.The growth rate of M2 money supply remains stable, and the total retail sales of consumer goods have gradually rebounded, ultimately leading to a significant rebound in GDP growth in the third quarter. In addition, a multitude of financial measures targeting the real estate industry have been launched in recent months.
As a result, foreign capital is continuously purchasing Chinese assets through northbound funds. Throughout November, the net amount of foreign capital purchasing A-shares reached 60 billion, marking the second-highest monthly figure this year. In the first two trading days of December, foreign capital continued to buy. On December 1st, the net inflow was 11.4 billion, and on December 2nd, it was close to 4.1 billion.
Moreover, more foreign capital has chosen to purchase Chinese assets in directions such as Hong Kong stocks and US-listed Chinese concept stocks. The Chinese yuan is not only expected to break through the 7 threshold in the near future but also to continue appreciating.