On December 16, the onshore RMB to USD exchange rate surged to 7.0417 during trading, marking its strongest level since September 30 last year. Both the onshore and offshore RMB exchange rates against the USD broke through the 7.05 threshold. Experts suggest that the RMB may soon surpass the 7.0 level in the short term.

       On December 16, the People’s Bank of China authorized the China Foreign Exchange Trade System to announce an RMB exchange rate middle price of 7.0602 yuan per US dollar. Since the beginning of this year, the RMB middle price has appreciated by over 1,000 basis points.

Two Direct Reasons
Wang Qing, chief macro analyst at Dongfang Jincheng, believes that the recent consecutive rise in the RMB exchange rate against the USD can be attributed to two direct reasons:

• Following the Federal Reserve’s interest rate cut on December 11, the US Dollar Index continued to decline, falling below 100. This has driven a broad appreciation of non-US currencies, including the RMB.

• The increased demand for foreign exchange settlements by enterprises at the end of the year has also contributed to the seasonal strengthening of the RMB. In particular, with the sustained appreciation of the RMB recently, the accumulated settlement demand from earlier periods may be accelerating.

       In terms of market news, on December 15, China’s economic data was released, showing that the national economy maintained overall stability in November, continuing a steady and progressive development trend. Overseas funds are accelerating their inflow into China. Recently, international organizations such as the International Monetary Fund (IMF), the World Bank, and several top global financial institutions have successively released reports, raising their expectations for China’s economic growth. The resilience of China’s economy and the effectiveness of its policies have gained widespread recognition, leading to a significant increase in overseas attention and allocation interest in the Chinese market.

       On the other hand, expectations for the Federal Reserve’s interest rate cuts have shifted unexpectedly. According to the latest data from CME’s "FedWatch," the probability of a 25-basis-point rate cut by the Fed in January next year is 24.4%, while the probability of maintaining the current rate is 75.6%. By March next year, the probability of a cumulative 25-basis-point rate cut is 41.9%, the probability of maintaining the rate is 49.8%, and the probability of a cumulative 50-basis-point rate cut is 8.3%.

Experts: High Probability of the RMB Breaking Through 7.0
       Wang Qing believes that, based on the current influencing factors, the RMB is expected to remain in a relatively strong position in the short term. Moving forward, close attention should be paid to the trend of the US dollar, the intensity of the RMB middle price adjustments, and the scale and pace of China’s domestic growth-stabilizing policies. Wang Qing stated that the RMB exchange rate will remain largely stable in the near future, generally following a pattern of inverse fluctuation with the US dollar and maintaining relatively small volatility. The risks of rapid appreciation or significant depreciation are both low.

       Liu Youhua, research director at Paipai Wealth, believes that in the short term, the RMB exchange rate is likely to exhibit a steady and rising trend. The combination of year-end settlement demand and the effects of interest rate cuts makes it highly probable for the exchange rate to break through the 7.0 threshold. However, from a medium- to long-term perspective, the upside potential for the RMB is expected to be limited, and it may maintain a wide-range fluctuation pattern overall. If the Federal Reserve further cuts interest rates in the future while China’s domestic economic momentum strengthens, the RMB may continue its upward trend and break through 7.0. Conversely, if the US economic recovery drives a rebound in the US dollar, the exchange rate may experience some corrections and fluctuate within the range below 7.0.