The USD to RMB trend has reversed! Will the RMB still appreciate in 2026?

The Renminbi Is Reversing a Three-Year Depreciation Pattern

Since 2025, a major event has occurred: the Renminbi has finally reversed the depreciation trend that began in 2022. The USD to RMB exchange rate has fluctuated between 7.04 and 7.3, appreciating about 3% over the year. More notably, in mid-December, the RMB strengthened sharply and broke through 7.05, then directly touched 7.0404, creating a new high in nearly 14 months.

What does this mean? Simply put, it has become cheaper to exchange US dollars for RMB.

The offshore Renminbi performed even more strongly, fluctuating between 7.02 and 7.4. At the beginning of the year, due to US tariff impacts, the RMB briefly fell near 7.40, even hitting a record since the 2015 exchange rate reform. However, in the second half of the year, as US-China negotiations eased and the US dollar index weakened, the RMB began to rebound, currently over 4% higher than the early-year high.

Who Are the Key Drivers Behind This?

Weakening of the US Dollar Index

In the first half of 2025, the US dollar index halved from 109 to 98, marking the weakest first half since the 1970s. Although it rebounded in November due to expectations of the Federal Reserve cutting interest rates easing, after the Fed officially cut rates in December, the dollar started to weaken again, touching a low of 97.869. The USD to RMB trend is highly influenced by the dollar index; a weaker dollar means more room for RMB appreciation.

Improved US-China Relations

Good news came from trade negotiations in Kuala Lumpur: the US reduced tariffs on Chinese goods related to fentanyl from 20% to 10%, and paused the 24% surcharge until November 2026. Both sides also temporarily suspended measures like rare earth export controls and port fees, and expanded agricultural product purchases. These signals indicate a easing of US-China trade tensions, providing support for RMB stability.

However, it’s worth noting that the Geneva agreement in May this year also quickly fell apart, so how long this ceasefire lasts remains uncertain. US-China trade relations remain the most critical external factor in judging the USD to RMB trend.

Subtle Balance of Central Bank Policies

The People’s Bank of China tends toward easing policies to support economic recovery. Rate cuts and reserve requirement ratio reductions can exert short-term downward pressure on the RMB. But if easing monetary policy combined with fiscal stimulus stabilizes China’s economy, it will support the RMB in the long term. At the same time, the pace of Federal Reserve rate cuts is also crucial—too rapid a cut could weaken the dollar, which is beneficial for the RMB.

Many Investment Banks Are Optimistic About RMB Appreciation

Market consensus is gradually forming: the RMB is entering a new cycle of medium- to long-term appreciation.

Deutsche Bank believes the RMB has started a long-term upward trajectory, estimating it will reach 7.0 by the end of 2025 and further strengthen to 6.7 by the end of 2026 (a smaller number indicates a stronger RMB).

Goldman Sachs has a more aggressive outlook. Global FX strategist Kamakshya Trivedi pointed out that the real effective exchange rate of the RMB is undervalued by 12% compared to the ten-year average, and 15% against the US dollar. Based on this logic, Goldman Sachs has raised its USD to RMB forecast for the next 12 months from 7.35 directly to 7.0. Goldman also emphasized that China’s strong export performance and government preference for other policy tools rather than devaluation are positive for the RMB.

Should You Buy RMB Now?

Participate in the short term, but don’t expect rapid large gains.

The probability of the RMB quickly falling below 7.0 before the end of 2025 is low. A more realistic expectation is for it to fluctuate within a range with limited amplitude. Key variables to watch are:

• USD Index trend: If it falls below 97 again, RMB appreciation potential opens up.
• RMB midpoint rate signals: The central bank’s stance determines short-term volatility.
• China’s growth stabilization policies: The more effective the policies, the more foreign capital will flow back.

How to Judge the Long-Term Trend of RMB?

Instead of passively waiting, it’s better to actively understand the logic:

First, observe the central bank’s monetary policy. Rate cuts and reserve requirement reductions → short-term RMB depreciation; rate hikes and tightening → short-term RMB appreciation. This is the basic logic.

Second, look at economic data. Improvements in GDP, PMI, CPI, fixed asset investment indicate increased attractiveness of China’s economy, encouraging foreign investment and increasing RMB demand. Conversely, poor economic data lead to capital shifting to other emerging markets, weakening the RMB.

Third, monitor the US dollar’s movements. The Federal Reserve and European Central Bank’s policy signals directly influence the dollar index; USD to RMB trends are often inversely related to the dollar index. For example, in 2017, the European economic recovery boosted the euro, causing the dollar index to fall 15%, and the RMB also declined similarly during that period.

Fourth, consider official stance. Unlike freely floating currencies, the RMB is not fully market-driven. The central bank influences short-term exchange rates through adjustments to the midpoint rate and counter-cyclical factors. The long-term trend depends on the market, but the central bank can guide short-term fluctuations.

What Has the RMB Experienced in the Past 5 Years?

2020: During the initial outbreak of the pandemic, the RMB depreciated to 7.18, but as China controlled the pandemic early and economic recovery accelerated, coupled with the Fed’s rate cuts to zero, the RMB rebounded to 6.50 by year-end, appreciating 6%.

2021: Strong exports and economic growth, along with prudent monetary policy and a subdued dollar index, kept the RMB in a strong range of 6.35-6.58 throughout the year.

2022: A turning point year. The Fed’s aggressive rate hikes pushed the dollar index higher, while strict pandemic controls and a real estate crisis dragged down the economy. The RMB depreciated from 6.35 to over 7.25, with an annual decline of 8%, the largest in recent years.

2023: Ongoing real estate debt crisis, sluggish consumption, and high US interest rates kept the RMB under pressure in the 6.83-7.35 range, averaging about 7.0.

2024: Weakening dollar eased pressure, and China’s fiscal stimulus boosted confidence. The RMB experienced increased volatility but overall remained relatively weak.

Why Is the Offshore RMB More Volatile?

Offshore RMB (CNH) trades in Hong Kong, Singapore, and other markets, outside China’s capital controls, making trading more free and sensitive to global market sentiment. Onshore RMB (CNY) is more influenced by the central bank’s interventions through the midpoint rate and foreign exchange interventions, resulting in relatively milder fluctuations. That’s why offshore RMB depreciated to 7.36 at the start of the year, while onshore markets remained relatively stable.

Summary

As the RMB enters a new appreciation cycle, the USD to RMB trend has shown a clear turning point. Although short-term factors like US-China relations, dollar movements, and central bank policies will continue to cause fluctuations, the medium- to long-term direction is clearer. By understanding the four key points—central bank policies, economic data, dollar trends, and official stance—you can significantly improve your judgment accuracy. After all, the forex market involves transparent factors, large trading volumes, and two-way operations, making it a relatively fair investment opportunity.