The renminbi has risen 2% against the dollar since the end of July, erasing all of its losses in the year to date. There appear to be two factors at work. One is a renewed appetite for the renminbi among firms and investors. China’s trade surplus has rebounded and market expectations of renminbi depreciation over the months ahead have started to fade. Chinese firms are converting more of their foreign exchange receipts into domestic currency as a result. The other factor is tolerance of mild currency strength by policymakers. We suspect this is in large part an attempt to neutralise the currency issue ahead of the US elections. If we’re right, this burst of renminbi strength won’t last.
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