RMB Rises Above 6.72, Hitting a Three-and-a-Half-Year High! The dollar has fallen below 99—is the 'rescue of US debt' 'abandoning the dollar'?

The direct trigger for RMB appreciation was the breakdown of the US dollar index. On August 19, the US dollar index fell 0.83% in a single day, closing at 98.833, hitting a new low since mid-May, and hit an intraday low of 98.695 on August 20. The reason is simple: in July, nonfarm payrolls unexpectedly fell by 23,000, the CPI fell year-on-year, retail sales declined month-on-month, and cooling US fundamentals pushed market pricing in a Fed rate hike in September down to around 30%.

But simply attributing this round of appreciation to a "weakening dollar" misses more important signals. As the dollar approaches the 99 mark, a rare proactive concession is taking place at the U.S. policy level: Treasury Secretary Becent is pushing for the U.S. and Japan to form a "monetary alliance" and jointly intervene in the foreign exchange market to buy yen, aiming to weaken the dollar's strength in exchange for stability in the U.S. Treasury market. The market summarizes this as "saving U.S. debt means abandoning the dollar." How this logic translates to the renminbi and global asset pricing is exactly what this article aims to analyze.

All three data lines simultaneously refresh at high levels

The central parity, on-shore, and offshore lines are not synchronized: the median parity reflects policy intentions, onshore reflects actual transactions, and offshore reflects international pricing. The simultaneous rebound of these three at stage highs indicates that this is not a single impulse in capital flows, but a triple resonance of policy, supply and demand, and expectations.

The most critical signal is the narrowing of the onshore-offshore price spread. On August 20, onshore closed at 6.7239, night session at 6.7260, and offshore at 6.7254, basically erasing the price gap between the two markets. Price differences are a thermometer of sentiment: during the 2022 RMB depreciation cycle, offshore was once discounted by thousands of points compared to onshore. Now that the two are merged, it means that overseas capital is aligning its judgment on the RMB's direction with domestic ones, rather than a one-sided game.

Why the US Dollar Broke Through: From "Rate Hike Trade" to "Expectation Reversal"

The starting point of this round of dollar decline is the market's overall reversal in the Fed's narrative. The support logic for the US dollar index in the first half of the year was "sticky inflation → rate hikes continued." Since July, employment and price data have cooled consecutively, breaking this logic.

The problem goes beyond the data. The U.S. Treasury doubled its long-term Treasury buyback to $4 billion, attempting to suppress long-term yields. Baycent later stated it could "increase further," essentially using fiscal tools to intervene in the interest rate curve; Meanwhile, the US and Japan jointly intervened in the forex market to buy yen, causing the USD/JPY to drop from above 163 to around 155. Taking action simultaneously at both interest rates and exchange rates effectively removes the "strong dollar" from the policy list for now.

This also explains why the US dollar index did not rebound as quickly as before after falling below 100. Previously, a strong dollar was supported by rate hike expectations, but this round only has the "difficulty in lowering interest rates" support, with inherently insufficient upward momentum.

The confidence of the RMB: export surplus and the positive cycle of "the higher the price, the more it forms."

Beyond external drivers, the endogenous support for this round of RMB appreciation is even more solid than in 2022. In terms of data, from January to July 2026, China's exports grew cumulatively by 18.5% year-on-year, with exports continuing strong growth in July; In June, banks' foreign exchange settlement and sales surplus for customers reached 57.42 billion USD, the third highest level in nearly three years.

The key lies in the positive circulation mechanism of foreign exchange settlement. With appreciation expectations, export companies tend to convert US dollars into RMB as soon as possible, creating a situation where "the stronger the RMB, the more foreign exchange is accumulated; The more foreign exchange you settle, the more the RMB appreciates." Companies' willingness to purchase foreign exchange has simultaneously weakened, easing the pressure on dollar buyers. CICC judges that since the beginning of this year, supply and demand in the foreign exchange market have favored the RMB, with a clear appreciation tendency. This mirrors the negative feedback of "more foreign exchange purchases as prices fall" in 2022, which is the fundamental reason why this round of appreciation is more sustainable.

A rare clash on the policy side

The highlight of this round of appreciation lies in the rare alignment of policy orientations between China and the United States. On China's side, the central bank's Q2 monetary policy implementation report reiterated "comprehensive measures to enhance the resilience of the foreign exchange market, prevent exchange rate overshooting risks, and maintain the RMB exchange rate basically stable at a reasonable and balanced level."

On the U.S. side, the direction is exactly the opposite, but the effect is the same. Citigroup pointed out in its research report that the exchange rate policy promoted by Becent essentially uses the active dilution of dollar credit to gain reserve countries to extend the duration of U.S. Treasuries and stabilize the structure of the U.S. bond market. Some analysts further highlight the risks: if Japan is guided to extend the duration of U.S. Treasuries, the maturity structure of U.S. Treasuries will be reshaped, causing long-term volatility to increase, ultimately weighing down the dollar as well. In other words, the more aggressively the US "rescues US debt," the more the dollar's quality is diluted, and the RMB and gold have become beneficiaries.

Looking further ahead, this round of RMB appreciation is actually a slice of global reserve system rebalancing. Data shows that the dollar's share in the global allocated official reserves has dropped to 57%, a thirty-year low. Citi has clearly stated a "strongly bullish on gold" judgment, with logic similar to RMB appreciation: under the active dilution of US dollar credit, non-sovereign reserve assets are undergoing systematic revaluation.

The counterintuitive part is: the US dollar index has fallen below 99, while US Treasury yields remain high. Essentially, these two events are happening simultaneously, essentially causing cracks in the internal pricing of "dollar assets": yields reflect fiscal and inflation risks, while exchange rates reflect credit and policy expectations. The beneficiaries of the cracks are, on one side, currencies like the renminbi, which have trade surplus-backed assets, and on the other, gold, which has no sovereign credit risk. Gold prices have already stood above $4,520 per ounce, and COMEX futures have risen to $4,575, which is a market-driven confirmation of this logic.

Further trend of the RMB

Regarding the subsequent trend, there is consensus among institutions but also disagreements. The disagreement lies in the ceiling and pace of appreciation. Some experts predict that the RMB is facing a "strategic appreciation" trend, and the US dollar index is likely to be in a cyclical downward channel in the coming years; Huatai Futures warns of two tail risks: if the US-Iran deadlock pushes up oil prices, imported inflation will once again suppress the RMB; If the Fed's information chain is hawkish and rate hike pricing resumes, a rebound in the dollar would amplify the narrowing of the appreciation window. Currently, net long positions in the US Dollar Index have accumulated to about $50 billion. If the variable is triggered and the buyback may amplify the rebound, The next window of observation is already set: Walsh's debut at the Jackson Hole annual meeting at the end of August, the Federal Reserve interest rate meeting on September 16, and statements at the G7 and G20 finance ministers' meetings on the direction of U.S. exchange rate policy—all key moments that determine whether the dollar can hold firm and the renminbi's appreciation continue.