In-Depth Analysis of USD Trends, Asian Currencies, and Renminbi Stability

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The USD Index exhibited a

in January 2025 [1]:

• Early January
  : The USD Index strongly broke through the key resistance level of 109-110, reaching as high as 110.24, hitting a new high since November 2022
• Driving factors
  : The US December non-farm payroll data far exceeded expectations (256,000 new jobs, unemployment rate fell to 4.1%), strengthening market expectations that the Federal Reserve will maintain high interest rates
• Mid-January
  : After US CPI data eased inflation concerns, the USD Index pulled back [1]

: The US December non-farm payroll data to be released on Friday (January 10) will become the key variable determining the short-term trend of the US dollar [2].

Indicator	Market Expectation	Previous Value	Analysis
Non-farm Payroll Additions	175,000	143,000	Expected to rebound
Unemployment Rate	4.1%	4.0%	Expected to remain at a low level
ADP Employment	41,000	Below expectation	Labor market still shows weakness [3]

:

• Citigroup forecast: If the unemployment rate rises to 4.7%, the Federal Reserve may cut interest rates by 25 basis points in January [2]
• Market expectations for 2026 interest rate cuts: Approximately 60 basis points, but analysts believe this may be underestimated (actual could reach 75-100 basis points) [2]
• Federal Funds Rate Futures show: The first interest rate cut is expected in Q2 2026 [3]

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Asian currencies were generally under pressure in January 2025, but showed clear divergence [1]:

Currency	January Change	Performance Assessment
Japanese Yen	-1.28%	Resilient performance, supported by Bank of Japan’s interest rate hike
South Korean Won	-0.85%	Under significant pressure
Renminbi	-0.75%	Relatively stable
Thai Baht	-0.52%	Moderate depreciation
Malaysian Ringgit	-0.45%	Relatively resilient

: The Bank of Japan announced a 25-basis-point interest rate hike on January 24, providing stable support for the Japanese Yen [1].

:

USD Strength → Capital Outflows → Emerging Market Assets Under Pressure
     ↓
Widening Interest Rate Spread → Carry Trade Reversal → Currency Depreciation Pressure
     ↓
Declining Risk Appetite → Capital Outflows from Stock Markets → Valuation Adjustments

:

• During the 2022 Federal Reserve interest rate hike cycle, Asian emerging market currencies depreciated by 10%-30%
• Although the USD is currently strong, central banks in various Asian countries have enhanced intervention capabilities and sufficient foreign exchange reserves [4]

According to UBS analysis [5]:

• If the USD continues to weaken, emerging market bond yields may improve
• Capital outflows will have a greater boosting effect on the Philippines/Mexico/Malaysia markets
• Mainland China, Taiwan, and India markets will benefit the most from USD depreciation in terms of returns

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[6]:

Indicator	Value	Month-on-Month Change	Year-on-Year Change
CPI	0.8%	+0.2%	Hit a new high since March 2023
Core CPI	1.2%	-	Remained above 1% for 4 consecutive months
Food CPI	1.1%	+0.9%	Main driving factor

:

• Full-year CPI in 2025 was flat compared to the previous year, and inflation pressure is manageable
• The price of industrial consumer goods excluding energy rose by 0.6%, indicating improved demand
• Prices of communication tools, maternity and baby products, and gold jewelry all increased [6]

[7]:

Indicator	Value
Renminbi Central Parity Rate (January 9)	7.0288
USD/Offshore Renminbi	6.98
January Fluctuation Range	6.97 - 6.98

:

1. Adequate Policy Tools
   • The central parity rate is controlled within 7.19 (7.34 is the depreciation upper limit) [8]
   • Tightened offshore liquidity: Overnight Hibor rose to 8.1% on January 7 (the highest since 2022) [8]
   • The central bank issued an additional 60 billion yuan central bank bills to absorb offshore liquidity [8]

2. Support from Economic Fundamentals
   • US-China Interest Rate Spread: The 10-year treasury bond spread reached 3.06% (1.58% in September 2024) [8]
   • Cross-border capital flows are stable, and supply and demand in the foreign exchange market are basically balanced [7]
   • Trade surplus provides support for the exchange rate

3. Risk Warnings
   • Enterprises and residents still have a strong willingness to hold foreign exchange (accumulation of “foreign exchange hoarding” in the foreign exchange market) [8]
   • The renminbi is stable against the USD, but has appreciated against a basket of currencies (which is not conducive to exports) [8]

:

• ✓ Improved CPI data provides evidence of economic recovery
• ✓ Clear signals of exchange rate stabilization policies
• ✓ Sufficient foreign exchange reserves
• ✓ Growth in cross-border renminbi business (17.2% year-on-year growth in Q1 2025) [7]

:

• ✗ The US-China interest rate spread continues to widen (the interest rate spread is positively correlated with the renminbi exchange rate) [8]
• ✗ Uncertainty in US tariff policies
• ✗ Risk of global trade frictions

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Strategy Type	Recommended Operations	Risk Warnings
Defensive	Focus on the Japanese Yen and Renminbi	Bank of Japan policy path
Opportunistic	Accumulate positions in the South Korean Won and Thai Baht on dips	Uncertainty in USD trends
Avoidance	Reduce exposure to the Canadian Dollar and Mexican Peso	Tariff policy risks

(ahead of non-farm payroll data):

• Reduce positions in emerging market equities
• Increase holdings of USD cash or US Treasury bonds for hedging
• Focus on safe-haven assets such as gold

(after non-farm payroll data):

• If employment data is weak → increase positions in emerging market risk assets
• If employment data is strong → maintain a defensive stance
• Focus on high-dividend assets in Asia

• Conservative Investors
  : Allocate to Chinese USD-denominated bonds (0.64%-1.42% increase in January) [1]
• Risk-Tolerant Investors
  : Focus on the A-share technology sector (policy support + valuation repair)
• Ultra-Conservative Investors
  : Hold renminbi wealth management products or treasury bonds

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1. Federal Reserve Policy Shift
   : If the labor market deteriorates beyond expectations, the pace of interest rate cuts may accelerate [2]
2. Geopolitical Risks
   : Uncertainty about the implementation timeline of Trump’s tariff policies [5]
3. Inflation Resurgence
   : Whether CPI data will continue to improve remains to be seen
4. Capital Outflow Pressure
   : Widening interest rate spreads may intensify this pressure

: May oscillate in the 100-110 range in the short term, and the direction needs to be guided by non-farm payroll data [1]

: The divergent pattern will continue, with the Japanese Yen relatively strong and the renminbi stable with slight appreciation

: Supported by both policies and improved fundamentals, stability is expected to continue, but attention needs to be paid to changes in the US-China interest rate spread [8]

: Capital outflow pressure is expected to ease as expectations for Federal Reserve interest rate cuts rise, and an allocation window may emerge in mid-2026 [5]

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[1] Orient Securities (Hong Kong) - Wealth Management Monthly Report January 2025 (https://www.dfzq.com.hk/)

[2] Wall Street CN - Focus on Friday’s Non-Farm Payrolls, Key Factor for Federal Reserve’s January Interest Rate Cut (https://wallstreetcn.com/articles/3762650)

[3] Securities Times - ADP Stopped Falling but Job Openings Declined, How Will Non-Farm Payrolls Affect Federal Reserve’s Interest Rate Cut Expectations (https://www.stcn.com/article/detail/3577496.html)

[4] Ping An Securities - How Can Asian Markets Emerge from the Strong USD Crisis? (https://pdf.dfcfw.com/pdf/H3_AP202301131581950851_1.pdf)

[5] UBS Global Research - What Does $1 Trillion in Capital Outflows from the US Mean for Emerging Markets? (https://finance.sina.com.cn/roll/2025-05-26/doc-inexwxma9778055.shtml)

[6] Xinhua News - China’s 2025 CPI Was Flat Compared to the Previous Year (https://www.news.cn/fortune/20260109/4633d3024bc44faf8d986386893e21de/c.html)

[7] People’s Bank of China - China Monetary Policy Execution Report (https://www.pbc.gov.cn/)

[8] Ping An Securities - Changes in the Renminbi Exchange Rate at the Start of the Year (https://pdf.dfcfw.com/pdf/H3_AP202501111641894779_1.pdf)

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Figure 1: USD Index Trend, Asian Currency Performance, US-China Interest Rate Spread and Renminbi Exchange Rate Relationship, Market Volatility Expectations Before and After Non-Farm Payroll Data

Figure 2: China’s 2025 CPI Trend, Renminbi Central Parity Rate, Stability Factor Analysis, Impact of Non-Farm Payroll Data on Asian Currencies

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