On November 22, at a routine policy briefing, Liu Ye, head of the International Department of the central bank, stated that the factors affecting exchange rates are diverse, and in the future, the renminbi exchange rate may maintain a two-way fluctuation trend.

In the early hours of November 21, Beijing time, the usd rose and broke through the key level of 107, approaching the peak of 107.348 points on October 3, 2023. Meanwhile, the offshore renminbi against the usd stood again at 7.25, the last time was at the end of July.

Liu Ye emphasized that the People's Bank will continue to uphold the decisive role of the market in the formation of exchange rates, maintain the elasticity of exchange rates while strengthening expectation guidance, prevent the forex market from forming a unilateral consistent expectation that becomes self-fulfilling, resolutely guard against the risk of exchange rate over-adjustment, and maintain basic stability of the renminbi exchange rate at a reasonable and balanced level.

On November 22, a senior analyst at a brokerage in peking told the Financial Associated Press that the statements made by the central bank today were rich in information but reiterated the elasticity of exchange rates. The analyst believes that the central bank's reiteration of exchange rate elasticity since July and August, combined with the internal and external objective environment, indicates that the management's tolerance for fluctuations in the renminbi exchange rate may be increasing.

Recently, gtja (Hong Kong) analyst Zhou Hao expressed the view that the recent renminbi midpoint has begun to diverge from the spot exchange rate, but the spot exchange rate has shown some signs of fluctuating weakly on the midpoint side following the usd. This implies that there is still a stabilizing force behind the forex market to prevent excessive 'herding effect' in the forex market.

Increase exchange rate elasticity stability to promote foreign trade.

In response to media questions about financial support for foreign trade, Liu Ye stated that the central bank continues to enhance enterprise exchange rate risk management services, guide enterprises and financial institutions to establish a risk-neutral concept, and instruct financial institutions based on the principles of actual demand and risk neutrality. From January to September this year, the enterprise forex hedging ratio was 27%, and the number of newly established exchange rate hedging 'first-account' exceeded 0.032 million, further enhancing the ability of small and medium-sized enterprises to avoid exchange rate fluctuation risks.

Central bank data shows that in the first three quarters of this year, the amount of cross-border payment in RMB for goods trade reached 8.9 trillion, a year-on-year increase of about 15%, accounting for as much as 26.5% of the total cross-border payment amount of goods trade in both foreign and domestic currencies during the same period, an increase of 2.1% year-on-year.

In response, Liu Ye stated that the ability of cross-border RMB business to serve the real economy has further improved, which also reduces the impact of forex market volatility on enterprises.

The nanhua futures report shows that in October, China’s cross-border receipts and payments and banks' forex settlement and sales continued to show a "dual surplus" trend, while the net inflow of cross-border funds in goods trade remained high, driving a steady increase in the net inflow of cross-border funds related to goods trade, with a month-on-month growth rate of 9.7% in net inflow scale.

Nanhua futures forex market analyst Zhou Ji believes that continuously refreshing historical peaks for three consecutive months has further enhanced the role of stabilizing cross-border capital flows. All of this is beneficial to stabilizing exchange rates.

However, Wang Shouwen, the international trade negotiation representative and vice minister of the Ministry of Commerce, stated that in recent years, globalization has encountered headwinds, and trade protectionism is prevalent. Since the beginning of this year, China's foreign trade has maintained a stable growth trend, but the growth rate has slowed since August.

The market and policy are in a short-term game around the 730 point level.

Nanhua futures Zhou Ji stated that in the short term, the USD to RMB spot exchange rate may still face some upward pressure, but overall it is controllable. From the internal environment, the domestic economy still shows signs of weak recovery, and the improvement in some data is only reflected in single-month consumer spending, commodity housing sales, and foreign trade data.

However, Zhou Ji believes that the policy to stabilize exchange rates has started to take effect and may continue, helping to slow down the depreciation slope of the RMB, for example, by the central bank issuing offshore central bank bills, combined with the initiation of counter-cyclical indicators.

On November 20, the central bank announced a tender for the issuance of the 10th and 11th central bank bills of 2024 in Hong Kong, with maturities of 3 months and 1 year, totaling 45 billion yuan.

The aforementioned brokerage analysts also stated that the market generally believes that 730 is the latest resistance level. Recently, the central bank has also been tightening some liquidity in Hong Kong, with a weakening trend in carry trades, indicating that the actions to stabilize exchange rates have already begun.

On November 19, a report from GTJA (Hong Kong) indicated that the offshore CNH financing costs rose from below 2% in October to the current range of 3%-4%, an increase of almost 100%.

Analyst Zhou Hao believes that entering October, the 1-month HIBOR price for offshore CNH began to rise, and the swap points for 1-year USD-CNH also increased simultaneously. The rising swap points indicate that the increase in offshore renminbi interest rates is a relatively independent phenomenon, and it also means that the cost of shorting renminbi in the offshore market has started to increase.

Regarding the issue of renminbi supply, in the largest offshore renminbi center, Hong Kong, the latest report from ICBC Asia shows that the renminbi deposit scale increased month-on-month in October, while the trading activity of offshore renminbi slightly declined after a rise last month, but still showed significant year-on-year growth. At the same time, on October 25, the Hong Kong Monetary Authority expanded the number of first-level liquidity providers for offshore renminbi to 11 and raised the repurchase agreement arrangement limit to 20 billion yuan.

The report suggests that against the backdrop of an increasing trend in the scale of the offshore renminbi funding pool, it will help enhance the liquidity in the offshore renminbi market and provide more positive and stable trading expectations for the market.