As the holiday approaches, here is your guide to RMB transactions
As the holiday approaches, the RMB foreign exchange market is gradually calming down, but attention should be paid to the risks of the May Day holiday. The RMB faces appreciation pressure, despite hitting a new low in April, the USD/RMB exchange rate has rebounded. The trade war has not severely harmed the RMB, and small and medium-sized enterprises are reducing the impact through various means. During the May Day period, attention should be paid to the US ISM Manufacturing Index and non-farm payroll data, which may affect interest rate cut expectations. Caution is advised in post-holiday trading, as liquidity shocks may increase volatility
On the last working day before the holiday, I believe friends can no longer contain their desire to relax. After the noisy and chaotic month of April, the RMB foreign exchange market has gradually returned to calm, but we still need to pay attention to the risks that may arise during the May Day holiday.
1. Is the RMB currently facing depreciation or appreciation pressure?
Although the RMB basket index hit a new low in April, the USD/RMB exchange rate has returned to the level it was at the beginning of April, and Trump's "reciprocal tariffs" did not severely harm the RMB. After the Carry trade ended yesterday, the willingness of Spot bulls to close positions before the holiday has shifted the central point down to 7.26.
The most panicked phase has passed. From the perspective of enterprises, the trade war has instead highlighted the irreplaceability of China's industrial chain. Apart from traditional B2B trade model enterprises that are waiting and delaying shipments, many small and medium-sized enterprises have reduced the impact through methods such as 90-day deferral for transshipment, having importers (like Walmart) bear tariffs, and low-value shipments from overseas warehouses.
Figure: Port throughput in April increased rather than decreased
The RMB has begun to catch up with the appreciation pace of non-USD currencies. The RMB index is too low, which is not conducive to trade negotiations with other countries. As the USD index weakens, the central parity rate has begun to guide the RMB to align with currencies like the Euro.
Unlike last year, the current pressure for capital outflow is not significant. The end of the "American exceptionalism" means that funds no longer favor the U.S., and the stability of the stock market has also injected confidence. Therefore, the RMB is facing more appreciation pressure in the short term, and we need to pay attention to the emergence of settlement forces.
2. What might happen in overseas markets during the May Day holiday?
On May 1, the U.S. ISM Manufacturing Index will be released. This data will test the effectiveness of "manufacturing reshoring" after the trade war.
On May 2, the non-farm payrolls report will be released. Will the job market deteriorate? The market expects 134,000 jobs, a decline from the previous value of 228,000, while the unemployment rate remains stable at 4.2%. Considering the concerns of Federal Reserve Governor Waller about employment, if the data falls short of expectations, it will raise expectations for interest rate cuts in May and June.
Figure: The combined expectation for interest rate cuts in May and June is less than one cut
The results of negotiations between the U.S. and its allies, the new flow of global funds at the beginning of the month, travel data during China's holiday, and China's manufacturing PMI for April are also worth paying attention to.
3. How to layout trading after the holiday?
Last year's roller coaster trend during the May Day holiday (USDCNH fell sharply by 900 points before rebounding) serves as a reminder that under the impact of liquidity shocks and external influences, volatility during the holiday may be amplified
Figure: The US Dollar Index weakened during last year's May Day holiday
However, before there is clarity on the China-US trade agreement, the mid-term basis for the renminbi does not support significant appreciation or depreciation, and the central parity will remain stable.
Considering that the renminbi's basket index is still at a low level, follow the adjustments of the US Dollar Index to adjust the fluctuation center of the renminbi exchange rate, reduce unilateral exposure, and increase the foreign exchange settlement hedging ratio when prices are high.
Risk warning and disclaimer
The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk
