2025 Outlook: Renminbi Resilience Amid a More Rational Forex Market

On December 19, 2024, the offshore RMB to USD exchange rate fell to 7.3141, while the onshore RMB to USD hovered around 7.2848, nearing a yearly low. In the backdrop of the Federal Reserve announcing a 25 basis point rate cut but signaling a slowdown in future rate cuts, the RMB is facing some downward pressure. However, forex traders generally believe that despite pressures from Fed policies, geopolitical tensions, and inverted China-US interest rate spreads, the RMB exchange rate is showing strong resilience.

Enhanced Resilience of the RMB Exchange Rate

According to industry analysts, multiple factors are supporting the resilience of the RMB exchange rate:

1. Improved Cross-border Capital Flows: In the first three quarters of 2024, banks recorded a slight surplus in foreign-related transactions, there was a continuous net inflow in trade, and foreign investment in China showed a positive trend.
2. Balanced Foreign Exchange Settlement: During the first three quarters, the foreign exchange settlement deficit narrowed and restored to a balanced state from the third quarter, keeping market expectations stable.
3. Active Derivatives Trading: More enterprises are using foreign exchange derivatives to hedge against exchange rate volatility, relieving the depreciation pressure on the spot rate.
4. Rational Trading Increases: Companies are more focused on settling foreign exchange when rates are high and buying when rates are low, reducing unilateral speculation, and significantly decreasing exchange rate volatility.

As of December 26, the onshore RMB reported at 7.2989 and the offshore RMB at 7.3060, both maintaining the "7.30" threshold, indicating overall stable market expectations.

Outlook for 2025: Continued Resilience of RMB Exchange Rate

Analysts point out that in 2025, the RMB exchange rate is likely to continue its high resilience due to several reasons:

1. Increased Share of RMB in Cross-border Trade Settlement: In the first eight months of 2024, RMB cross-border transactions reached 41.6 trillion yuan, up 21.1% year-on-year. Trade settlement proportion increased further to 26.5%, effectively lowering exchange rate fluctuation risks.
2. Active Foreign Exchange Market Transactions: In the first three quarters, RMB forex market volume grew 10.1% year-on-year, with a rise in the share of derivatives trading, reducing bets on RMB corrections.
3. Foreign Exchange Reserve Support: By the end of November, China’s foreign exchange reserves stood at USD 3.2659 trillion, providing ample market intervention capacity, and overseas speculative capital is cautious about large-scale shorting of the RMB.

Additionally, there is growing favor from overseas investors towards Chinese financial assets, providing extra support for the RMB exchange rate. Domestic and foreign investors anticipate that as China's economic fundamentals continue to improve and policy stability enhances, the RMB exchange rate will experience smooth fluctuations at a reasonable and balanced level.

Short-term Pressure and Long-term Opportunities Coexist

Although the RMB may face short-term fluctuations due to a strengthening USD or geopolitical events, in the long run, China's policy support and refined market mechanisms will provide a solid foundation for the RMB exchange rate. As the foreign exchange market becomes more rational, the RMB's position in international trade and investment will be further consolidated, making the 2025 RMB exchange rate outlook promising.

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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