Can the RMB continue its appreciation? Multiple institutions are optimistic about further appreciation by 2026.

Exchange Rate Breaks 7 Triggering Chain Reactions

As 2024 draws to a close, the foreign exchange market is experiencing a significant shift. The USD/CNH (US dollar to offshore Chinese yuan) has fallen to 6.9965, hitting a low not seen since September 2024, while the USD/CNY (US dollar to onshore Chinese yuan) has also dropped to 7.0051, marking a new low since May 2023. This seemingly ordinary fluctuation in numbers signifies an important psychological milestone in the yuan’s appreciation process.

Triple Factors Driving the Renminbi’s Strength

The recent appreciation of the yuan is not accidental. Market analysis suggests that a combination of a weakening US dollar, central bank policy guidance, and year-end foreign exchange settlement effects have jointly propelled this wave of appreciation.

From the US dollar perspective, under the impact of the Federal Reserve’s rate cuts and the global de-dollarization trend, the dollar index has declined by over 10% this year, with a recent drop of more than 2%. The weakening dollar directly benefits the yuan’s exchange rate performance. On the Chinese central bank side, the central bank has continuously raised the midpoint of the USD/CNY exchange rate, guiding market expectations through reference rates and gradually releasing appreciation expectations.

During the year-end period, Chinese exporters’ foreign exchange settlement demand is concentrated. Coupled with the accumulation of trade surpluses, corporate annual foreign exchange settlement activities have increased yuan buying. Additionally, the central bank has yet to implement further rate cuts, and the approaching holidays have tightened offshore liquidity. These factors all contribute to the yuan’s rise.

Potential Increase in Capital Market Attractiveness

Wang Qing, Chief Macro Analyst at Orient Securities, pointed out, “The weakening dollar and seasonal foreign exchange settlements by exporters have driven the yuan’s strong upward movement. Continued yuan appreciation will enhance China’s capital market appeal to international investors.” This means that exchange rate changes not only impact trade but may also improve capital inflows under the capital account.

Institutional Outlook for 2026

Although the yuan against the dollar has shown strength, most institutions believe there is still room for undervaluation based on trade-weighted indices and China’s economic fundamentals.

Xing Zhaopeng, Senior Strategist at ANZ Bank, predicts that in the first half of 2026, USD/CNY will fluctuate within the range of 6.95-7.00. Goldman Sachs offers a more optimistic forecast: considering that the yuan is undervalued by about 25% relative to its fundamentals, Goldman expects USD/CNY to fall to 6.90 by mid-2026 and further depreciate to 6.85 by the end of the year.

Bank of America focuses on the improvement in US-China relations and its positive impact on export prospects. The institution believes that an improved trade environment will encourage exporters to sell more US dollars, increasing upward pressure on the yuan. They forecast that by the end of 2026, USD/CNY will fall to 6.80.

Overall, these institutional views suggest that the appreciation of the yuan by 2026 has become a market consensus, and future exchange rate developments warrant ongoing attention.