International Business News – After two years, the RMB exchange rate is back below 6.90 yuan.

On the morning of August 29, the RMB’s mid-price against the USD was at 6.8698, down 212 basis points from the previous trading day. The onshore and offshore RMB/USD exchange rates both fell below the 6.90 mark, making people wonder if it will break 7 if it continues.

Why did the dollar strengthen? Julius Investment Advisory senior investment advisor Xie Logistics said in an interview with the International Business Times reporter, first, the dollar is strong relative to the euro and the yen strong, the Bank of Japan continued quantitative easing led to the yen depreciation trend is obvious, the Russia-Ukraine conflict, the eurozone capital outflow, the United States plays the role of a safe haven for funds. The second is the interest rate hike factor. The Fed’s tightening monetary policy has made the US dollar appear more scarce in the global market, prompting the dollar to strengthen.

Hongze Capital founding partner and chief strategist Xu Yaxin told the International Business Times that, on the one hand, the impact of the Russian-Ukrainian geopolitical crisis in the first half of the year, high energy prices, which in turn pushed inflation higher, with the Federal Reserve as the main central banks have opened the interest rate hike cycle. Successive interest rate hikes to market expectations of the future economy into recession is expected to heat up, the dollar as a safe-haven assets continue to increase in attractiveness. On the other hand, the Fed and other central banks to widen the interest rate differential, many Fed officials frequently released hawkish remarks, while non-US currencies euro, pound and yen continued to weaken, disguised to enhance the dollar upward momentum.

“The recent hawkish remarks from the Fed’s Powell, stressing that it will continue to tighten monetary policy to reach the goal of inflation control, gave great support to the short-term strength of the dollar.” Chen Yucheng, a senior investment advisor at Jufeng Investment Consulting, told International Business Daily that the RMB exchange rate, as a relative price, depends on the strength of demand for the RMB versus foreign currencies. The strong dollar natural RMB will be relatively weak.

For the recent fall in the RMB exchange rate factors, Xie logistics analysis, said, one is the further relaxation of domestic monetary policy, the recent MLF and LPR interest rate cut, the exchange rate of short-term disturbance; two is the pace of the Federal Reserve interest rate hikes did not slow down, the euro continued to weaken; three is the repeated epidemic, Sichuan power restrictions and other factors make the capital for the domestic economic recovery process concerns.

“If the inversion of the interest rate gap between China and the United States continues to widen, the exchange rate has a certain possibility of breaking 7.” Xie Logistics said, but the RMB’s supporting factors continue to be stable, and there is no basis for long-term depreciation.

Chen Yucheng also believes that from the current account, China’s exports remain resilient. In the long run, the support for the yuan comes from domestic economic repair, so there will be no unilateral depreciation, and breaking 7 is a small probability event.

“From the overall trend of the yuan this year, it is just weak relative to the dollar.” Xu Yaxin gave a set of data, the yen, the euro and the British pound so far in the year, relative to the dollar depreciation of 20.65%, 12.82% and 13.82% respectively, while the yuan against the dollar only depreciated 8.87% in the year. “So, it is not critical for the RMB to break 7 against the dollar, and the RMB remains relatively strong relative to the performance of many other countries’ exchange rates. The domestic adoption of an accommodative monetary policy will certainly bring depreciation pressure on the short-term exchange rate, but stabilizing economic fundamentals is more conducive to the confidence of funds in the medium and long term, and there is no need to worry too much about the short-term depreciation of the RMB against the dollar.”