Forecasting Exchange Rates and Trade Balances: An ARIMA Analysis of USD/RMB and China's Trade Dynamics

Abstract

This paper utilizes an ARIMA model to predict the future exchange rate and trade balance of China. The primary data is the monthly average exchange rate of USD/RMB, while China's monthly trade balance serves as auxiliary data. The findings indicate a projected downward trend in the USD/RMB exchange rate, continuing from 2023 to 2024 and stabilizing around 6.7 from 2024 to 2025. This implies a depreciation of the Chinese currency against the US dollar. Additionally, China's trade balance is expected to experience modest growth over the next two years, albeit at a significantly reduced rate compared to previous years. These projections highlight the challenges faced by Chinese exporters and suggest evolving global trade dynamics. The paper discusses policy implications for managing exchange rate fluctuations and sustaining balanced trade relations. It emphasizes the usefulness of the ARIMA model for forecasting exchange rates and trade balances while acknowledging the limitations and potential impact of unforeseen events or policy changes on the outcomes. The study concludes by suggesting avenues for future research to improve the accuracy and robustness of such forecasts, encouraging continued exploration in this dynamic field of study.