Over the past six months, the RMB has quietly completed a "comeback."
The offshore RMB (CNH) rose from a high of 7.4 in April to 7.06, a new high in a year. Against the backdrop of widespread global currency volatility, the RMB has become one of the strongest performing currencies in the Asian market.
Some are happy, some are sad. Those who firmly believed the RMB would break 7.3 were forced to close their positions, and investors who held long-term US dollars, including those holding shadow dollars (USDT), passively "incurred losses" (denominated in RMB).
Why has the RMB strengthened at this point in time? Can it continue?
The market is buying it up. In the past, when people talked about the appreciation of the RMB, the common expression was "the central bank intervened." However, this round of RMB appreciation, unlike the past which was more policy-driven, is the result of natural market selection. Why do we say this? Because, according to the data, changes in the closing price are the main contributor to the appreciation of the RMB central parity rate. Here's a brief explanation: there are two key prices for the RMB exchange rate each day: Closing Price: The final price resulting from actual buying and selling in the market. Midpoint Price: The "reference price" announced by the central bank the following morning, guiding trading for the day. If this round of RMB appreciation was mainly supported by policy, you would see the midpoint price being adjusted strongly in advance, but the closing price still weakening, indicating that the market is not buying it. This time, however, the opposite occurred. The closing price rose first, and the midpoint rate was simply adjusted upwards based on the increased closing price, indicating that market funds were indeed buying RMB. The primary factor driving RMB appreciation came from external sources: the relentlessly declining US dollar forced the RMB to appreciate passively. Since the beginning of this year, the US dollar index has fallen by nearly 10%. On the one hand, US employment and retail data continued to weaken; on the other hand, expectations of a US interest rate cut intensified, triggering a concentrated liquidation of arbitrage positions. The passive weakening of the US dollar has led to a general rebound in emerging market currencies worldwide, with the RMB performing the best. As the Federal Reserve continues to cut interest rates, the RMB still has room for further appreciation. If the above represents the RMB's passive appreciation, then the changes in the A-share market provide a second logical chain for "active appreciation." Since August of this year, A-shares have strengthened significantly, with the Shanghai Composite Index breaking through 4000 points, reaching a nearly ten-year high. Technology stocks, particularly those in the chip and CPO sectors, have seen remarkable growth. The attractiveness of Chinese assets has increased significantly, and foreign investors' risk appetite is returning. As Chinese assets become more attractive to global funds, the RMB will naturally appreciate more easily. When the US dollar weakens and the RMB appreciates, the recovery in the willingness to settle foreign exchange and hedge will also drive RMB demand. Since the beginning of this year, the real demand for RMB in the foreign trade market has risen rapidly. The net trade settlement rate rose from 23.9% at the beginning of the year to 54.8% in July, and the hedging rate (forward settlement contract amount / foreign currency income) rose to 10%, a new high in nearly a year. What does this indicate? Businesses are willing to convert US dollars into RMB, and they are also willing to lock in future RMB exchange rates, anticipating a bullish future trend. In summary, this round of RMB appreciation is the result of a "triple force": The US dollar entered a downward cycle, causing the RMB to passively appreciate. Chinese assets entered a "valuation repair cycle," and the RMB continued to appreciate through "active appreciation." At the real economy level, businesses have strong demand for foreign exchange settlement. These three forces reinforce each other, forming a closed loop of RMB appreciation.
Positive for A-shares
In the short term, RMB appreciation will put pressure on exports, but in the long term it will benefit the stock market.
In the past few years, the expectation of RMB depreciation was a "hidden cost" that suppressed overseas funds.
Now, this cost is disappearing. Especially against the backdrop of US dollar interest rate cuts, a large amount of funds has begun to flow globally, seeking better investment opportunities.
Recent data released by the State Administration of Foreign Exchange shows that in the first half of 2025, foreign capital net purchased US$10.1 billion of domestic stocks and funds, reversing the net reduction trend of the past two years.
Especially for state-owned enterprises with strong dividends, leading companies in sectors like telecommunications, power, utilities, and AI + semiconductors will be the primary beneficiaries. According to a Goldman Sachs report, Chinese stocks tend to perform well when the currency appreciates, with stock returns showing a positive correlation and beta coefficient with the RMB exchange rate (both bilateral and basket conditions). Specifically, since 2012, the average foreign exchange/stock correlation and beta coefficient have been 35% and 1.9 respectively, indicating that stocks trade positively 66% of the time when the RMB strengthens. RMB appreciation can benefit Chinese stocks through accounting, fundamentals, risk premiums, and portfolio liquidity channels. Goldman Sachs estimates that, all else being equal, a 1% appreciation of the RMB against the USD could boost the Chinese stock market by 3%, including exchange rate gains. Holding USDT carries risks. USDT has long been the "standard currency" for interaction between Chinese retail investors and the on-chain world, and a long-standing shadow dollar. However, the current RMB appreciation, coupled with policy shifts, makes holding stablecoins risky. Long-term RMB appreciation means that holding USDT long-term is equivalent to bearing the losses from USD depreciation in the long term. Secondly, recently, the People's Bank of China and thirteen other departments jointly cracked down on virtual currency trading and speculation, officially including stablecoins in the scope of virtual currency regulation, including key monitoring of financial and foreign exchange risks. Virtual currency exchange is a key target for future crackdowns; in other words, USDT has been included in the "foreign exchange management framework." This will lead to increased costs and risks in exchanging USDT for RMB off-exchange, and a decrease in USDT's "RMB liquidity." Therefore, the USDT/RMB exchange rate has recently fallen below 7. In the midst of a crypto bear market, investors are reluctant to directly engage with highly volatile crypto assets, but also want to avoid the regulatory and exchange rate risks associated with USDT. Therefore, they are turning to a new area: investing in non-crypto assets with stablecoins, such as on-chain US stocks and on-chain gold. This still allows them to hedge against a declining dollar cycle, and it's more convenient. A large number of investors are being forced to transition from "stablecoin savings" to "on-chain dollar asset savings." This will have a profound impact on the crypto market.
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