SMM News: risk volatility and Asian Foreign Exchange in parallel

The renminbi has shown resilience in geopolitical tensions

Under the dual pressure of escalating tensions between China and India and contradictory remarks between China and the United States on the first phase of the trade agreement, the RMB has not been materially affected. Some of the blockade measures taken by Beijing in response to the recent Xinguan outbreak have not put much pressure on the yuan. The impact of the outbreak is mainly reflected in the decline in air passenger traffic (and other travel data, such as TomTom), which has raised concerns that the economic recovery may be disrupted. However, for now, the new round of outbreaks has not yet substantially reversed the expectations of China's V-shaped recovery. Beijing's restrictions are far less than the scale of the total shutdown in Wuhan and key industrial zones at the beginning of this year.

Concerns about the strength of the economic recovery may be one of the factors for the people's Bank of China to remain silent these days, aimed at building strength for future stimulus policies. At the beginning of this week, the benchmark lending rate announced by the people's Bank of China remained at the expected levels of 3.85% (1-year) and 4.65% (5-year), while recent easing was achieved by lowering the required reserve ratio. In order to boost the economy to inject liquidity, the central bank has cut the required reserve ratio several times this year.

We believe that there is still some room for the RMB to continue to appreciate moderately. Current account changes and interest rate spreads are good for the renminbi, and geopolitical tensions are not yet likely to escalate further, but this is undoubtedly an important monitoring factor. The United States has confirmed that the first phase of the agreement is still in force, while the threat of restrictions in a number of other non-trade areas has recently eased. We expect the RMB to continue to strengthen.

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