Recently, the exchange rate has become the "protagonist" of the market. After the holiday, Asian currencies collectively rushed, and the RMB rose by nearly 600 points. What is the scope of subsequent appreciation?

On Tuesday, the onshore yuan rose to its highest level since November last year, up nearly 600 points in the day.

The Asian foreign exchange market fluctuated violently in the past two days, and the offshore RMB once rose above 7.20. The Hong Kong dollar has continuously reached the guarantee of strong exchanges. The Taiwan dollar has soared at a "historical level", with a cumulative increase of more than 9% in two days. The most direct fuse behind the surge is the positive signal of US tariff negotiations.

Looking ahead to the future market, how much room does the RMB appreciate in the short term? In the medium and long term, what signals does the rare changes in Asian currencies reveal?

How much room is there for the subsequent appreciation of the RMB?

Minsheng Macro Shao Xiang believes that since the depreciation of the RMB is limited when the United States imposes a large amount of tariffs, we should also be restrained from the appreciation caused by the easing of negotiations, and it is more inclined to be between July 10 and July 20.

First, the psychological price of the central bank. Judging from the mid-price announced by the central bank today (May 6), the RMB exchange rate pricing is still mainly anchored to the US dollar, and the intention to interfere with the market is not obvious - the current level may not have touched the key points yet. From the historical experience in the past two years, 7.1 and 7.0 are both levels that the central bank cares more.

The second is the changes in the RMB compared with other currencies. The central bank may need to control the depreciation of the RMB relative to other currencies to avoid new frictions. Taking the euro as an example, the current euro against the RMB is 8.21. In extreme cases, the RMB rose back to the level before April 10 (8.05), and the euro and the US dollar were closely linked. When the euro and the US dollar were stable at the current level, the corresponding US dollar was roughly 7.07 against the RMB.

What signals does the violent fluctuations in the Asian foreign exchange market reveal?

In the medium and long term, the collective "abnormal movement" of Asian currencies may reflect the signal of changing exchange rate paradigm, which also means that the pressure on the US dollar will be structural. The Hong Kong dollar, Taiwan dollar and RMB represent three different exchange rate models, and the macro-level statement of people's livelihood:

Hong Kong dollar model (anchored US dollar): Under the dominance of the US dollar system, the market is more worried about whether the depreciation of the Hong Kong dollar can maintain the "weak side guarantee", leading to decoupling and a currency crisis (because the HKMA wants to sell the US dollar to support the Hong Kong dollar); as the US dollar system shakes, maintaining the "strong side guarantee" may lead to the risk of holding too much US dollar. Buying US dollars and selling Hong Kong dollars will increase liquidity in the Hong Kong market in China. As long as the trigger is not a crisis event, it will usually be beneficial to the performance of Hong Kong stocks. But further, in the long run, if the importance of direct trade decreases, the necessity for deep binding between the Hong Kong dollar and the US dollar system may also decline.

Taiwan dollar model (exchange rate undervaluation + private financial cycle): The central bank accumulates trade surplus through exchange rate undervaluation, and private institutions purchase large quantities of US dollar assets (such as US bonds) to balance the balance of payments. As the Taiwan dollar depreciates and the widening of interest rate spreads between the United States and Taiwan, financial institutions' willingness to hedge exchange rate risks has declined. In the long run, weakening of the US dollar system and changes in the external environment may force the Taiwan dollar to find strategies to diversify investment and diversify risks. Faced with short-term pressure, you can choose to reduce US asset holdings (US bonds fell, NTD appreciated) or increase hedging exposure (NTD appreciated). In the medium and long term, the US dollar system will be weakened and the Taiwan dollar will be more difficult to survive in the cracks. Diversified investment or buying gold to diversify risks may be a better choice.

RMB model (restricted volatility + restricted participation of financial institutions): describes the mechanism to reduce RMB volatility through means such as intermediate price guidance and offshore market intervention. Since trade surplus is in the hands of the central bank and central enterprises, domestic financial institutions have limited participation, and the negative cycle of RMB exchange rate hedging is relatively small. However, there is a clear difference between offshore and onshore under control. The offshore volume is small, and liquidity is prone to problems during the long holidays unique to China, resulting in big rises and big falls. Whenever the holiday is over, official intervention and onshore institutions will reduce volatility and return to normal transactions.