Key takeaways

• The RMB weakened to a one-year low on a higher USDCNY fixing rate and lower Chinese bond yields.
• It is worth monitoring whether the fixing rate will go beyond 7.20, should broad USD strength continue.
• Markets will also focus on the upcoming Politburo meeting and the Central Economic Work Conference.

The RMB slid to a one-year low today (3 December) after the following developments:

• Higher USD-CNY fixing rate: The USD-CNY fixing rate was set at 7.1996, the highest rate since September 2023 (see chart below).
• Lower Chinese bond yields: The Chinese 10-year government bond yield briefly broke the widely watched support level of 2% to hit a record low (Bloomberg, 3 December 2024), while the People’s Bank of China (PBoC) Governor Pan Gongsheng pledged to increase counter-cyclical regulation to reduce overall financing costs in 2025 (Bloomberg, 2 December 2024).

Source: Bloomberg, HSBC

However, we think it is too early to conclude that the PBoC is ready to tolerate further RMB weakness. The fixing rate is still below the 7.20 mark, which puts the ceiling of the USD-CNY trading band below 7.35. Back in 2023, the fixing rate was around 7.20 for a sustained period of time, with only brief breakthroughs in June and August and a peak at 7.2258 on 30 June (see chart above). Therefore, it is worth monitoring whether the USD-CNY fixing rate will go beyond 7.20 in the coming days, should broad USD strength continue.

Over the near term, markets will also focus on potential policy announcements at the Politburo’s meeting on economic work and the annual agenda-setting Central Economic Work Conference. These are expected to be held around mid- December, with the exact dates yet to be announced. Last year, the Politburo meeting was on 8 December, followed by a work conference on 11-12 December.

As we approach the end of 2024, we also need to be mindful that the spread between the spot USD-CNY closing rate (16:30 local time) and the daily fixing date may narrow. It happened in 2023, with the spread narrowing quickly in December (as highlighted by the oval in the chart above) against the backdrop of the PBoC’s policy guidance, a weaker USD, and thin market liquidity during the holidays.

https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/flash-2024-12-03/