How gold's surge affects the yuan

Under the transmission effect, financial market fluctuations have received close attention. A reporter from Beijing Business Daily noticed that after a sharp depreciation in mid-to-late March, the RMB (7.2329, 0.0024, 0.03%) exchange rate has shown a trend of stabilization and recovery since April. On April 9, the central parity rate of the RMB fell slightly, down 9 basis points in a single day. The exchange rates of the onshore RMB and offshore RMB against the US dollar also showed a rebound trend after depreciation. The overall fluctuations of the three major quotations were relatively stable and remained within a reasonable range.

On the same day, gold, which has continued to surge, once again hit a record high, with an intraday high of over $2,380 per ounce. Superimposed on the fact that the central bank once again increased its holdings of gold reserves in March, some analysts pointed out that the current rise in both gold and the US dollar is a special situation. Generally speaking, the seesaw effect of gold and the US dollar will return. The rise in gold prices is generally conducive to the stabilization of the RMB exchange rate. The People's Bank of China Increasing gold reserves will also help enhance the credibility and acceptance of the RMB in the international market.

RMB exchange rate fluctuations

According to past data from the China Foreign Exchange Trading Center, in the past month, the central parity rate of the RMB has always fluctuated slightly within the range of 7.09-7.10. During this period, it only depreciated below the 7.10 mark on March 22, at 7.1004, and the single-day fluctuation range remained mostly below 10 basis points.

During the same period, the onshore RMB and offshore RMB exchange rates against the U.S. dollar experienced fluctuations in depreciation and then stabilized and rebounded.

After entering April, the offshore RMB exchange rate against the US dollar rebounded and recovered to the 7.25 mark, fluctuating within a narrow range around 7.24.

Regarding the recent trend of the RMB exchange rate, Zhou Maohua, a macro researcher at the Financial Markets Department of China Everbright Bank, pointed out that the recent RMB exchange rate against the US dollar has risen steadily and the market trend is stable, mainly due to the continued recovery of the domestic economy, strong and effective macro policies, overall economic data exceeding expectations, and market trends. Factors such as becoming more optimistic about the prospects for economic recovery. Since April, the U.S. dollar index (104.1138, 0.0117, 0.01%) has fallen back from its highs and has fluctuated within a narrow range. At the same time, domestic capital market sentiment has recovered, and foreign capital has been flowing in, which has driven the RMB exchange rate to rebound.

Mingming said, "The main support for subsequent stabilization comes from domestic fundamentals and the People's Bank of China's exchange rate tools. On the one hand, the state of basic moderate recovery without an unexpected decline can play a supporting role for the exchange rate. At the same time, since this year, the financial account has Both stock securities investment and bond securities investment have maintained a certain scale of inflow, providing certain support for the RMB exchange rate. In addition, the People's Bank of China's goal of stabilizing the exchange rate remains clear, and the relevant policy toolbox is still sufficient."

Rising gold helps yuan stabilize

On the other hand, as the RMB exchange rate rebounds, the recent hot topics in the financial market are inseparable from the skyrocketing gold. Since mid-February, international gold prices have continued to rise, setting new highs on many occasions.

Wind data shows that on April 9, COMEX gold continued its appreciation trend, hitting an intraday high of $2,380.5 per ounce. As of 17:30 on April 9, COMEX gold was trading at US$2,379.7 per ounce, with an intraday increase of 1.22%.

In the context of increasing gold reserve holdings and the soaring gold price, some market analysts pointed out that the People's Bank of China's continued increase in gold holdings will help maintain and increase the value of reserve assets and lay a solid foundation for the continued advancement of the internationalization of the RMB.

Yang Haiping, a researcher at the Securities and Futures Research Institute of the Central University of Finance and Economics, further explained that the current rise in both gold and the US dollar is a special situation, and in general the seesaw effect of gold and the US dollar will return. Therefore, rising gold prices are generally conducive to the stabilization of the RMB exchange rate. The increase in gold allocation by the People's Bank of China is a manifestation of further diversification of international reserves, which will help enhance the confidence of international investors and international financial markets in the RMB and RMB assets, and provide confidence guarantee for the steady and prudent promotion of RMB internationalization.

Zhou Maohua said that as a safe asset in the traditional sense, gold has a high degree of global recognition and has an indispensable position in the international monetary system. The People's Bank of China's increase in gold holdings will help diversify official reserve assets, enhance the stability of reserve asset valuations, and also help enhance the credibility and acceptance of the RMB in the international market. As the price of gold rises, my country's foreign exchange reserve assets have become thicker and more stable, which will help enhance the ability of my country's financial system to withstand external risks, enhance the resilience of the financial system, and also provide solid support for the RMB exchange rate.

Recovery is still the main tone

According to the official website of the People's Bank of China, on March 29, the Monetary Policy Committee of the People's Bank of China held its regular meeting for the first quarter of 2024. The meeting mentioned that since 2024, supply and demand in my country's foreign exchange market have been basically balanced, the current account surplus is stable, foreign exchange reserves are sufficient, the RMB exchange rate has floated in both directions, and expectations have stabilized, maintaining basic stability at a reasonable and balanced level, and playing the role of a macroeconomic stabilizer.

Regarding the follow-up exchange rate market work, the meeting pointed out that it is necessary to deepen the market-oriented reform of the exchange rate, guide enterprises and financial institutions to adhere to the concept of "risk neutrality", implement comprehensive policies, correct deviations, stabilize expectations, resolutely correct procyclical behavior, and resolutely prevent exchange rate excess Reduce risks, prevent the formation of unilateral consensus expectations and self-reinforcement, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

Talking about the next stage of the RMB exchange rate trend, Mingming believes that the U.S. dollar index is running at a high level and the RMB exchange rate may still be under pressure. However, internal factors can still support the RMB exchange rate. Considering that the financial accounts represented by the stock and bond markets maintain net inflows and the People's Bank of China maintains the strength of its exchange rate stabilization policy, it is unlikely that the exchange rate will break through the previous high. Marginal changes in U.S. economic data in the second quarter and changes in the monetary policy orientation of major overseas central banks will be the focus of exchange rate attention.

"The pressure on the U.S. dollar to cut interest rates continues to accumulate, and the U.S. dollar index is expected to gradually fall back in the future. In the short term, the stabilization and recovery of the RMB exchange rate will still be the main tone." Yang Haiping said. In terms of the follow-up trend of gold, Yang Haiping pointed out that the overall price of gold will still show a fluctuating trend with downward support and upward space, but investors should not blindly pursue higher prices.