After the good news such as the improvement of the trade environment, the global financial markets were heartened by it. While the dollar index strengthened, the RMB exchange rate against the dollar also got rid of the influence of the dollar index and stepped out of the independent market of strong rise.

On October 14, driven by the improvement of the trade environment and other positive factors, the stock market and foreign exchange market responded with a gratifying rise. As of 16:30, the onshore RMB closed at 7.0669 against the dollar, up 331 points from the previous day, while the offshore RMB was at around 7.066, up more than 200 points from the previous day, while the dollar index also rebounded significantly on the day. However, the offshore trend has since been revised back.

In the last five trading days, the RMB exchange rate has withdrawn from around 7.14 to more than 800 points, an increase of nearly 1%. On October 10, the offshore RMB even rebounded more than 600 points in a rare intraday session.

In fact, the trend of RMB exchange rate stabilization has been going on for nearly a week. In the past five trading days, the yuan has risen by about 1% against the dollar. Market expectations for the follow-up trend of the RMB exchange rate are also quietly changing. From the newly announced non-deliverable forward rate (NDF), the NDF quotations of all major maturity varieties are rising, and the latest NDF quotations within 3 months are all higher than the spot level, indicating that the market expects the RMB exchange rate to continue to rise in the coming period of time.

Multiple positive factors lead to a strong rebound

The exchange rate of the renminbi against the dollar on October 14 continued the strong rebound trend of nearly a week. The onshore RMB exchange rate broke through the 7.05barrier at one point during the day, reaching a maximum of 7.0494. As of 16:30, it closed, up more than 300 points on the day, while the offshore RMB exchange rate also rose nearly 200 points.

A stronger yuan usually benefits the aviation sector. Since October 10, the performance of aviation stocks has been good, with Huaxia Airlines, Air China Limited and China Eastern Airlines Corp Ltd all continuing to strengthen.

Wang Youxin, a researcher at Bank of China Ltd. Research Institute, told Chinese reporters at brokerages that the main reason for the recent rebound of the RMB is the gradual release and confirmation of good news about the improvement of the trade environment. In addition, domestic economic data improved in September compared with August, while the PMI index and new export orders index rebounded, indicating that economic fundamentals are gradually stabilizing. In addition, financial market liberalization measures have been launched continuously, and cross-border capital inflows have continued under the financial sector. From abroad, the Federal Reserve will continue to cut interest rates, and the Federal Reserve will launch its short-term treasury bond purchase program again in the near future, according to the latest minutes of the Federal Open Market Committee (FOMC) meeting and officials' speeches. By contrast, China's monetary policy remains relatively stable at present, and the trend of monetary policy between China and the United States is divided, which also supports the strengthening of the RMB exchange rate.

The market expects volatility to continue to increase.

The recent strong rebound in the RMB exchange rate also reflects a change in market expectations of exchange rate movements. From the RMB non-deliverable forward rate (NDF) announced on October 14, the NDF quotations of all major maturity varieties are in pullback, and the latest NDF quotations within 3 months are all higher than the spot level, indicating that the market expects the RMB exchange rate to continue to rise for some time to come.

Forward exchange rate refers to the exchange rate of forward market transactions, that is, foreign currency buyers and sellers can not be delivered immediately after the transaction, but the agreed exchange rate used for delivery within a certain period of time. The market expectation of the RMB exchange rate trend can be measured by the forward exchange rate. Since October 10, the RMB NDF offer has been in a continuous correction, and the correction has gradually increased, indicating that the market's bullish basis for the RMB exchange rate has gradually deepened.

It is widely expected that the improvement in the trade environment will lead to a rebound in the RMB exchange rate in the short term, but in the medium to long term, the exchange rate trend will still return to economic fundamentals. Therefore, it is expected that the range of two-way fluctuations of RMB exchange rate will continue to increase in the future.

Societe Generale research believes that the current rebound in market risk appetite forms a pulse impact, and the exchange rate center of the US dollar against the RMB moves downward, but the room for appreciation in the next five weeks is relatively limited. If market sentiment improves further, it will trigger a sharp short-term appreciation of the RMB exchange rate, and the medium-term trend is still closely related to domestic fundamentals.

Xie Yunliang, chief macro analyst at Minsheng Securities, believes that the RMB is mainly stable in the short term. However, as there are still variables in the external environment, the flexibility of RMB may increase in the medium term. In the long run, the RMB still has the potential to appreciate. China's economic growth is still in the lead among major economies, and the internationalization of the RMB is expected to open a new chapter.