On May 5th, the offshore Chinese yuan rose above the 7.20 mark against the US dollar, marking the first time since November last year. The largest increase in two trading days was nearly 900 points.

  The Chinese yuan surged from 7.42 to 7.2  

       When the news of the US imposing tariffs was released last month, the Chinese yuan experienced a sharp decline in the short term. At one point, one US dollar could be exchanged for 7.42 yuan, but now one US dollar can only be exchanged for 7.2 yuan.

       Strangely, the US dollar index rebounded from 99 to 100. While other currencies should have depreciated against the US dollar, some currencies have collectively "rebelled" - the Thai baht, Australian dollar, and Hong Kong dollar are all appreciating.

       Even due to the significant appreciation, the Hong Kong Monetary Authority has taken some regulatory measures. On the morning of May 3rd, the Hong Kong Monetary Authority disclosed that the exchange rate of the Hong Kong dollar against the US dollar had hit the strong side exchange guarantee the previous night. The Hong Kong Monetary Authority entered the market to receive 6 billion US dollars and injected 46.5 billion Hong Kong dollars into the market.

       Now there is a reversal, and the market is showing that if the trade war starts, US stocks, US bonds, and the US dollar will fall, while if we talk about it, US stocks, US bonds, and the US dollar will rise. At the same time, the Chinese yuan will not weaken due to the rise of the US dollar index, and is more likely to strengthen together with the US dollar against a basket of currencies, "said Liu Yang, a foreign exchange expert and general manager of the financial market business department of Zhejiang Merchants Zhongtuo Group.

  Reasons for the sharp rise of the Renminbi  

       The easing of the trade war is the main reason, for example, the United States exempts 25% tariffs on automotive parts from Canada and Mexico.

       Various sectors are gradually realizing that 'equivalent tariffs' are being used as a negotiation strategy. Currently, the market believes that the United States and some Asian countries may partially reach an agreement, while countries with large trade surpluses such as Europe may take longer. However, overall, optimism is heating up, "David Scutt, a senior strategist at Jiasheng Group, told reporters.

       The external situation is clearly favorable for offshore RMB. In mid April, the US dollar index and the Chinese yuan fell together at one point, but now they have turned to rise together, mainly due to trade frictions and their progress.

       As of last week's close, the US dollar/offshore renminbi was at 7.211, with the renminbi surging nearly 700 points that week.

       Liu Yang stated that funds have clearly flowed back into US assets, and US stocks have continued to rebound. The 10-year US Treasury yield hit as low as 4%, and the US dollar index once reached the psychological level of 100. The funds flowing back into US stocks mainly come from the Japanese bond market, and the role of the Japanese yen has shifted from a safe haven currency to a financing currency, which has also led to a rebound of the US dollar/yen to above 145.

       The Chinese yuan did not weaken due to the rise of the US dollar index, but instead strengthened in sync with the US dollar index, which also reflects the strength of the Chinese yuan against a basket of currencies.

       Starting from April, when the US dollar weakened, the US dollar index fell nearly 10% against the euro, and the Chinese yuan also fell nearly 5% against the euro. However, at that time, the trend of the Chinese yuan against the US dollar was relatively stable, and now it is expected that the Chinese yuan will start to strengthen against the US dollar. In the future, the evolution of tariff issues and the process of trade negotiations will continue to dominate the market.

  Cross border RMB business brings positive news  

       In addition, thanks to the continuous promotion of the "the Belt and Road" initiative, the economic, trade and financial cooperation between China and the co construction countries has reached a new level.

       According to the data of the People's Bank of China, in the first quarter of this year, the receipt and payment amount of cross-border RMB business in China and Malaysia was 102 billion yuan, up 27% year on year; The cross-border RMB business receipts and payments with Cambodia amounted to 5 billion yuan, a year-on-year increase of 45%. Among them, the cross-border RMB receipts and payments for goods trade amounted to 1.3 billion yuan, a year-on-year increase of 23%.

Li Huihui, a professor of management practice at Lyon Business School in France, believes that the surge in cross-border use of the renminbi is not only a matter of technology or payment, but also a reflection of the synchronous deepening of currency sovereignty and industrial trust between China and "friendly trading countries".

       Li Huihui further stated that cross-border RMB business will not only promote trade efficiency, but the key lies in the formation of the localized asset reserve attribute of RMB in the Asia Pacific region. This has profound significance for Chinese enterprises to "go global", free cross-border capital flow, and hedge against external fluctuations of US dollar assets.