The central parity rate of the RMB against the US dollar set by the China Foreign Exchange Trade System on June 29 stood at 6.8175, down 9 basis points from the previous trading day, posting a mild depreciation with limited overall volatility, without any sharp one-sided slump. Driven by the persistently high US Dollar Index and rising market expectations for Federal Reserve rate hikes within 2026, most non-US currencies came under pressure, and the RMB edged lower passively in tandem.

The onshore and offshore RMB exchange rates diverged slightly during intraday trading, with a very narrow spread between the two markets. In early trading, the onshore RMB traded around 6.8026 against the US dollar, with an intraday depreciation of less than 0.05%. The offshore RMB was quoted at roughly 6.8053, with intraday volatility of merely 0.01%. The two markets moved closely in line with each other, leaving little room for cross-border arbitrage and reflecting steady overall market sentiment.

Main foreign currencies saw differentiated movements against the RMB. The central parity rate of EUR/CNY rose 159 basis points to 7.7564, GBP/CNY climbed 70 basis points to 8.9902, and 100 JPY edged up 3 basis points to 4.2110. SGD, CHF and CAD also strengthened moderately. In contrast, commodity currencies softened: AUD fell 66 basis points and NZD dropped 31 basis points, while HKD weakened marginally, pressured by falling international commodity prices.

Market institutions commented that the mild adjustment of the central parity rate only passively tracked the stronger US dollar. Sustained foreign exchange settlement orders from domestic enterprises provided solid downside support. Monthly concentrated settlement by exporters offset purchasing demand for foreign currency, and the market widely agreed that the RMB would trade sideways within a tight range in the short run with no basis for sustained sharp depreciation.

2. In-depth Analysis of May Foreign Exchange Transaction Data

The State Administration of Foreign Exchange (SAFE) released full May foreign exchange market statistics in late June. Total turnover of China’s foreign exchange market reached 23.14 trillion yuan in May, equivalent to 3.38 trillion US dollars, maintaining a high trading volume. Transactions were split into two segments: retail transactions between banks and corporate clients hit 4.33 trillion yuan, while interbank wholesale transactions stood at 18.81 trillion yuan, remaining the dominant component of overall turnover.

Breaking down transaction types, spot foreign exchange transactions totalled 8.89 trillion yuan, and foreign exchange derivatives reached 14.26 trillion yuan, accounting for over 60% of total volume for multiple consecutive months. The surging derivatives volume stemmed from stronger awareness of exchange rate risk hedging among foreign trade firms, which widely adopted forward foreign exchange settlement and sales, FX swaps and options to lock in costs and mitigate operational risks stemming from US dollar swings.

Cumulative turnover from January to May hit 124.22 trillion yuan, or 17.97 trillion US dollars, with cross-border activity more active than the same period last year. Supporting cross-border payment and receipt data showed non-bank entities recorded total cross-border receipts and payments equivalent to 1.5 trillion US dollars in May, a year-on-year rise of 22%, fuelled by recovering import and export trade as well as cross-border investment and financing activities.

On capital flows, non-bank entities posted a net cross-border capital inflow of 62.5 billion US dollars in May, up 1% month-on-month. Banks registered a surplus of 35.8 billion US dollars in foreign exchange settlement and sales, down only 11% month-on-month. Goods trade remained the core channel of capital inflows, while services trade posted a regular modest deficit. Seasonal foreign exchange purchases for quarterly dividend payouts by foreign-funded enterprises created temporary demand for US dollars, yet the overall capital flow structure stayed balanced. Foreign capital maintained net inflows, continuing to increase holdings of domestic stocks and bonds with no obvious pullback in overseas institutions’ willingness to allocate RMB assets.

SAFE stated that corporate settlement and purchase rates remained flat month-on-month in May. All market participants traded based on genuine trade and investment needs, with no panic foreign exchange buying or mass RMB sell-offs, keeping exchange rate expectations stable. China’s overall external debt stood at 2.41 trillion US dollars with an optimised structure, where RMB-denominated debt accounted for 55% of total liabilities, effectively cushioning the impact of US dollar volatility on domestic debt and keeping external debt risks fully under control.

3. Latest Progress in RMB Internationalisation: RMB Clearing Arrangement Launched in Indonesia

Multiple major cooperation measures on cross-border RMB settlement were finalised at the second bilateral meeting between the central banks of China and Indonesia in mid-June. The People’s Bank of China (PBOC) and Bank Indonesia signed a memorandum of understanding on RMB clearing arrangements, officially appointing Bank of China Jakarta Branch as the local RMB clearing bank in Indonesia, expanding the global network of official RMB clearing services covering 19 countries and regions at present.

Four supporting measures were rolled out to fully unblock bilateral local currency settlement channels. First, a domestic RMB clearing system in Indonesia was established to enable direct fund transfers between local banks without US dollar intermediation, cutting cross-border exchange fees and dual exchange rate risks for Chinese and Indonesian trading firms. Second, a tripartite local currency direct settlement memorandum was signed together with the Hong Kong Monetary Authority to facilitate cross-border capital flows centred on Hong Kong’s offshore RMB hub. Third, cross-border QR code payment connectivity between China and Indonesia went live, allowing tourists and small-scale traders to settle transactions directly in local currencies. Fourth, Mandiri Bank of Indonesia became the first local institution to gain direct access to the Cross-border Interbank Payment System (CIPS), greatly shortening the settlement cycle for cross-border RMB transfers.

CIPS now covers 191 countries and regions with 194 direct participants and nearly 1,600 indirect participants, with continuous accelerated layout across Southeast Asia. The two nations maintain a bilateral currency swap agreement worth 400 billion yuan to provide liquidity buffers amid exchange rate fluctuations and stabilise regional RMB circulation. Looking ahead, Indonesia plans to issue RMB-denominated dim sum bonds in Hong Kong and prepare for panda bond issuance domestically to broaden RMB investment and financing channels.

Pan Gongsheng, Governor of the PBOC, attended the Bank for International Settlements (BIS) Global Central Bank Governors Meeting, focusing discussions on three core topics: risks of secondary global inflation rebound driving divergent monetary policies, impacts of artificial intelligence on cross-border financial systems and capital flows, and macroprudential management frameworks for cross-border capital flows in emerging markets. He elaborated on steady progress in RMB internationalisation, stressing continuous improvement of institutional opening-up for cross-border investment and financing, expansion of RMB hedging asset supplies, and balancing exchange rate flexibility with market stability.

4. Tighter Foreign Exchange Supervision: Large Penalties Issued to Payment Institutions for Compliance Violations

The PBOC and SAFE have stepped up compliance inspections of cross-border payment businesses recently, issuing fines of tens of millions of yuan to multiple licensed payment institutions, sending a clear signal of tightened regulation. Yipayment was penalised over 48 million yuan in total for failing to verify cross-border transaction documents, defective anti-money laundering risk control and unauthorised foreign exchange clearing operations, with heavy individual fines imposed on persons directly responsible. Huiju Payment and Lianlian Payment were fined more than 3 million yuan each for inadequate review of cross-border RMB receipts and payments and unregulated foreign exchange settlement and sales-related activities.

Common violations leading to penalties included inadequate authenticity checks on cross-border trade and e-commerce orders enabling fake cross-border transactions to obtain foreign exchange, failure to submit required foreign exchange statistical reports, unlicensed disguised foreign exchange settlement and sales services, and flawed anti-money laundering mechanisms for cross-border capital flows. Regulators clarified that they will keep raising compliance costs for payment institutions, conduct regular on-site inspections, and crack down severely on fake trade fraud and underground cross-border capital transfers to safeguard stability in the foreign exchange market.

5. Core Factors Underpinning the RMB in the Short Term

Based on current domestic fundamentals and policy conditions, the RMB faces no sustained depreciation pressure. First, China’s import and export trade maintains strong resilience, generating steady foreign exchange settlement inflows from goods trade. Second, China holds ample foreign exchange reserves, and the central bank possesses sufficient policy tools to stabilise the exchange rate, including adjustments to foreign exchange deposit reserve ratios, cross-border investment and financing regulation, and forward foreign exchange risk reserves under the macroprudential framework. Third, the long-term trend of overseas central banks and institutions increasing RMB asset holdings remains intact amid advancing RMB internationalisation. Fourth, improved supply of foreign exchange derivatives has lifted corporate hedging coverage, significantly reducing market sentiment for one-sided exchange rate swings.

For the short term, the only downward pressure stems from the stronger US Dollar Index driven by hawkish Federal Reserve expectations, representing a temporary external disturbance. Ample domestic liquidity and balanced cross-border capital fundamentals will continue to underpin the RMB, which is expected to fluctuate sideways within a range in the near term.

Disclaimer: All information is for reference only and does not constitute any foreign exchange investment or trading advice.