China | 2023 RMB Exchange Rate Outlook

Summary

RMB to USD exchange rate has cumulatively depreciated by 8% in 2023, amid expectation change of the US FED hike path. Look forward, we predict RMB to go back to around 7-7.1 at end-2023 and 6.7 at end-2024.

Key points

• Key points:
• The recent sharp RMB depreciation by accumulately 8% has raised lots of market concerns.
• The underlying reasons for depreciation, chief among them, is the expectation change of the US FED interest rate hike path and unsynchronized China-US monetary policy.
• Domestic macro fundamentals also count, such as economic recovery came to a halt in Q2, shrinking current account and escalating geopolitical issues, etc.
• However, RMB will not go one-way depreciation for long, which will reverse after FED finishes its possible another 2 hikes and starts the rate cut cycle.
• In addition, the PBoC has many counter-cyclical tools to avoid one-way depreciation and RMB exchange rate sell-off.

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