【TMGM Financial Recap】Four-Year High for Renminbi: Dollar Strengthens Too, but for Wholly Different Reasons

6.7208 was the renminbi’s central parity rate on 19 October. The fixing strengthened 12 basis points from the previous day, extending its run of upward business-day adjustments to three. By late trading in New York, onshore and offshore rates were 6.6810 and 6.6822 respectively. Year-to-date appreciation measured 4.38% at the central parity rate, 4.35% in onshore spot trading and more than 4.1% offshore. The dollar advanced alongside it. After moving back above 102 during the session, the US Dollar Index settled 0.14% higher at 101.98.

Of the six currencies included in the US Dollar Index, the euro carries 57.6% of the weight. This is a fixed allocation under the index methodology, not an estimate. Allocations for the other currencies are 13.6% for the Japanese yen, 11.9% for the British pound, 9.1% for the Canadian dollar, 4.2% for the Swedish krona and 3.6% for the Swiss franc. In trading on 19 October, the euro ended 0.19% lower at 1.1212 and the yen lost 0.30% to reach 158.52. Sterling and the Swiss franc declined 0.10% and 0.28% respectively. The Canadian dollar alone posted a gain, rising 0.33%. Once weighted, these moves added 0.11 percentage points to the index through the euro, 0.04 percentage points through the yen and 0.01 percentage points through the Swiss franc. The Canadian dollar offset 0.03 percentage points. The aggregate contribution across the six currencies was 0.14 percentage points, accounting exactly for the index’s daily increase. Selling in eurozone bonds added to the euro’s weakness. French sovereign CDS hit a multiyear high as the country’s 10-year government bond yield increased 15 basis points to 4.93% and its yield spread over Germany widened to 146 basis points. As capital left French government bonds, the euro was pulled down with them.

US$337.9 Billion: Dollar Conversions Support the Renminbi

US$447.18 billion was September’s export total. That represented growth of 36.3% year on year. The month’s trade surplus increased to US$133.53 billion from US$119.1 billion in August. These flows supported the renminbi through a different channel from the European forces responsible for the dollar’s 0.14% gain.

Meeting payroll, tax and loan obligations requires exporters to convert dollar income into renminbi. For January to August, the banking system’s foreign exchange settlement and sales surplus was US$337.9 billion; the comparable figure a year earlier was US$12.1 billion. More than US$300 billion in additional funds over seven months ultimately feeds into the interbank market. Interest rate differentials exert pressure in the reverse direction.

The US 10-year Treasury yields 5.141%, against 1.647% on China’s 10-year government bond. This 349 basis point gap translates into 3.49 percentage points less annual interest for holders of renminbi assets. Currency changes, however, alter the return calculation. A foreign buyer of 10-year Chinese government bonds earns a 1.647% coupon and has also benefited from this year’s 4.38% appreciation in the renminbi’s central parity rate. Their simple combined return is 6.03%, ahead of the comparable US 10-year Treasury yield of 5.141%. This approximate calculation makes no allowance for hedging costs. Even so, it points to a clear outcome: relying only on the 349-basis-point differential to short the renminbi has produced losses this year.

Domestic dollar conversions appeared to be providing the upward impetus on 19 October. Offshore pricing stood at 6.6822 against 6.6810 onshore, leaving the offshore renminbi 12 pips weaker. Exchanging dollars for renminbi offshore therefore delivered a less favourable rate.

For close to a year, the two forces have worked against one another. Dollar conversions have proved stronger this year. CITIC Securities believes exporters stepped up conversions after expectations switched from renminbi depreciation to appreciation at the end of 2025. In its assessment, this markedly weakened the correlation between the exchange rate and the China-US interest rate differential. The process can reinforce itself: conversions lift the renminbi, increasing anxiety among companies still holding dollars because each day’s delay means fewer renminbi received on conversion. That momentum can build without an external trigger until most corporate dollar holdings have been exchanged.

Around 9% Since 2025: Renminbi Gains Without a Central Parity Push

Two messages were paired in the Monetary Policy Committee’s third-quarter meeting statement: “uphold the decisive role of the market in exchange rate formation” and “guard against herd behavior and the self-reinforcement of irrational expectations.” The central bank puts renminbi appreciation against the dollar since 2025 at around 9%. It also maintains that there is “neither a need nor an intention to gain a competitive trade advantage through currency depreciation.”

Dollar pricing applies to crude oil, iron ore and soybeans, so procurement costs fall by one percentage point for every percentage point of currency appreciation. Cheaper imported raw materials offer downstream businesses a modest buffer when September’s PPI is rising 6.3% year on year. The same currency gain works against exporters. Moving from 7.0 to 6.8 on a US$1 million order reduces renminbi receipts by RMB200,000. For small and medium-sized exporters, whose net profit margins are often below 5%, that adjustment alone can remove more than half a year’s profit. September’s 36.3% increase in dollar-denominated exports coincided with renminbi appreciation of 4.35% over the corresponding period. Deducting the currency effect still puts growth in exporters’ renminbi revenue above 30%. Margins, not orders, have therefore felt the squeeze from appreciation so far. In its closing passage, the third-quarter meeting statement continued to pledge to “keep the renminbi exchange rate basically stable at a reasonable and balanced level”.

6.40 Within a Year: The Renminbi Appreciation Outlook

A forecast of 6.40 within a year comes from Goldman Sachs’ Kamakshya Trivedi. He calculates that the renminbi is currently 20% to 25% undervalued. The trade surplus’s composition forms the basis of CITIC Securities’ reasoning: non-AI goods account for this year’s surplus growth. With no significant shift in global manufacturing conditions, the foundations supporting the currency remain in place.

The unresolved corporate dollar balance sits at the centre of the disagreement. Companies converted US$337.9 billion between January and August, but no complete public measure shows the pool still available. Foreign exchange settlement and sales data exclude exporters’ retained proportion of dollar receipts, dollar deposits belonging to overseas subsidiaries and outstanding receivables. Continuing at September’s rate of US$133.53 billion would create approximately another US$400 billion in trade surplus to address in the fourth quarter. Only one assumption underpins that projection: export growth neither accelerates further nor declines.

Dollar developments could also change the picture. Further European capital transfers into dollar assets, should France’s latest turmoil last through the budget vote, would support a rising US Dollar Index and constrain potential renminbi gains. The simultaneous advances on 19 October were possible because each currency had a distinct driver. European fiscal risks supported the dollar; domestic demand to convert dollar receipts into renminbi supported the Chinese currency. A global dollar shortage arising from Europe’s flight to safety would invalidate that premise.