Is the Chinese Yuan expected to appreciate in 2026? Analyzing the current exchange rate trend for future investment opportunities

The Renminbi Reverses Its Depreciation Cycle, A New Appreciation Trajectory Is Starting

The three-year depreciation period from 2022 to 2024 seems to have come to an end. Entering 2025, the Renminbi’s trend has shown a clear shift—since the beginning of the year, USD to RMB has fluctuated between 7.04 and 7.3, with an overall appreciation of about 3%. More notably, by mid-December, the RMB against the US dollar suddenly broke through the 7.05 resistance level strongly, then continued to climb to 7.0404, hitting a new high in nearly 14 months. This sudden surge marks a significant change in market expectations regarding the Renminbi’s outlook.

The offshore market is even more sensitive, with USD to offshore RMB fluctuating between 7.02 and 7.4, reflecting real-time international capital judgments on China’s currency. From a technical perspective, the RMB is gradually recovering lost ground, and the underlying logic warrants in-depth exploration.

Three Major Forces Are Driving the Renminbi Trend Reversal

Easing of Trade Negotiations Brings Market Confidence

The uncertainty over tariffs in the first half of the year once pushed the RMB to the brink—offshore RMB broke below 7.40, creating a record since the 2015 “8.11 Reform.” However, with progress in China-U.S. trade talks, both sides have sent positive signals. In recent negotiations, the US lowered tariffs on fentanyl-related goods to 10% and temporarily suspended additional measures until the end of 2026. Although this ceasefire carries risks of reversal, it is enough to improve short-term market sentiment.

The Shift from a Strong to a Weak US Dollar Index Changes the Game

At the start of the year, the US dollar index peaked at 109, then fell back to the 97.8-98.5 range, a decline of over 10%, marking the weakest first half since the 1970s. Although it briefly rebounded above 100 in November due to expectations of Fed rate cuts easing, in December, with rate cuts implemented and market expectations of a dovish stance in the future, the dollar index weakened again. The RMB and the dollar index usually have an inverse relationship; a weaker dollar naturally loosens the RMB’s peg.

China’s Export Performance and Policy Stimuli Drive Dual Momentum

China’s export growth remains resilient, and the trend of foreign capital reallocating into RMB assets is forming. Meanwhile, China maintains a loose monetary policy to support economic recovery, with the People’s Bank of China (PBOC) using rate cuts, reserve requirement ratio (RRR) reductions, and other tools to inject liquidity. While these measures may exert short-term downward pressure on the exchange rate, if combined with strong fiscal stimulus to stabilize the economy, they will be conducive to RMB strengthening in the long run.

International Investment Banks’ Optimistic Forecasts Provide a Roadmap

Several top institutions have provided forecasts that guide the future of the RMB.

Deutsche Bank believes the appreciation cycle has begun, estimating that the USD to RMB exchange rate will reach 7.0 by the end of 2025 and further appreciate to 6.7 by the end of 2026, implying about 5% upside within the next year or so.

Goldman Sachs has significantly revised its expectations. The bank raised its forecast for the next 12 months USD to RMB from 7.35 to 7.0, noting that the real effective exchange rate of the RMB is undervalued by 12% compared to the ten-year average, with a deeper undervaluation of 15% against the dollar. Goldman’s logic is clear: progress in China-U.S. trade negotiations boosts confidence, and the RMB has significant room for correction, while the Chinese government prefers to use other policy tools rather than currency depreciation to stimulate the economy.

To Enter Now or Wait? How Investors Can Judge the Timing

Currently, there are indeed profit opportunities in RMB-related currency pairs, but the key lies in timing.

In the short term, the RMB is expected to maintain a relatively strong trend, moving inversely to the dollar. However, the likelihood of rapid appreciation below 7.0 is low; investors should be psychologically prepared and not expect large gaps. The market before the end of 2025 is more likely to see limited-range oscillations, with a true breakout possibly only appearing in 2026.

Three key variables to watch closely are: Will the USD index continue to weaken?; Will the RMB midpoint fixing signals continue to favor appreciation?; and Will China’s efforts to stabilize growth exceed expectations in terms of intensity and pace? These factors will directly determine the actual trajectory of the RMB.

Master These Four Dimensions to Judge the Future Direction of the RMB

Rather than blindly following institutional forecasts, investors should learn to analyze the RMB trend independently. Long-term observation can be made from these four perspectives:

People’s Bank of China’s monetary policy stance—Easing measures like rate cuts and RRR reductions exert short-term downward pressure on the RMB, while tightening policies like rate hikes and RRR increases tend to support appreciation. In 2014, the PBOC cut rates six times consecutively and significantly lowered reserve requirements for small and medium-sized financial institutions to below 8%, during which USD to RMB rose from 6 to over 7.4, illustrating the profound impact of monetary policy.

Relative performance of China’s economic data—When GDP, PMI, CPI, fixed asset investment, and other indicators improve, foreign capital inflows increase, boosting RMB demand and strengthening the exchange rate; the opposite scenario applies when data deteriorates. In 2020, China quickly controlled the pandemic and achieved economic recovery, coupled with the Fed’s rate cuts to near zero, leading to about 6% RMB appreciation for the year—this exemplifies the logic.

US dollar and Federal Reserve policy trends—The Fed’s decisions on rate hikes or cuts directly influence the dollar index. In 2017, the European Central Bank signaled tightening, the euro strengthened, and after the dollar index broke above 100, it showed signs of fatigue, falling 15% for the year, which also caused the USD to RMB to decline sharply, demonstrating a high correlation.

Official stance of the People’s Bank of China on the exchange rate—In 2017, the PBOC adjusted the midpoint pricing model to “closing price + a basket of currencies exchange rate change + countercyclical factor,” which eased market procyclical behavior and strengthened official guidance. While this has a clear short-term impact on the exchange rate, the medium- and long-term trend remains governed by the broader currency market forces.

The RMB Trend Cycle Over the Past Five Years and Historical Patterns Worth Learning From

2020 Pandemic Accelerated Appreciation—Initially in the 6.9-7.0 range, due to China-U.S. trade tensions, it briefly depreciated to 7.18, but as China quickly controlled the pandemic and led the recovery, and with the Fed’s near-zero rate policy, it rebounded strongly to around 6.50 by year-end, appreciating about 6%.

2021 Maintained a Strong Trend—China’s exports continued to grow, the economy was robust, and the PBOC maintained a prudent policy. The dollar index remained low, and USD to RMB fluctuated narrowly between 6.35 and 6.58, averaging about 6.45.

2022 Suffered a Major Blow—Aggressive Fed rate hikes pushed the dollar index higher, while strict pandemic controls and a real estate crisis dragged on growth. USD to RMB rose above 7.25 from 6.35, depreciating about 8% for the year, the largest decline in recent years.

2023 Continued Pressure—The exchange rate fluctuated between 6.83 and 7.35, China’s economic recovery was below expectations, and the real estate debt crisis persisted. The US maintained high interest rates, with RMB averaging about 7.0 for the year.

2024 Showing Signs of Bottoming and Rebound—The dollar weakened, China’s fiscal stimulus and real estate support measures boosted confidence, and volatility increased, with offshore RMB breaking through 7.10 in August.

These five-year trajectories clearly show that when China enters a sustained loose monetary policy cycle, the RMB tends to form a more obvious medium- to long-term trend, which can last up to ten years based on similar historical cycles. Although short-term fluctuations occur due to dollar movements and external events, the overall direction is clear.

Offshore RMB Market Reflects the Most Authentic Voice of the International Market

It is worth noting that offshore RMB (CNH), traded freely in international markets (Hong Kong, Singapore, etc.) without capital controls, often exhibits more volatility than onshore RMB (CNY). In 2025, despite multiple fluctuations, CNH generally trended upward—initially depreciating below 7.36 when US tariffs surged and the dollar soared to 109.85, prompting the PBOC to issue 60 billion offshore bonds to stabilize the market; recently, with warming China-U.S. dialogue, economic policy fermentation, and rising Fed rate cut expectations, CNH broke below 7.05 on December 15, rebounding over 4% from the year’s high, reaching a 13-month high. The speed and magnitude of this rebound fully reflect the rapid improvement in global capital expectations for China.

Summary: Grasping the Big Picture Is the Key to Forex Investment Success

As the RMB enters a new appreciation cycle, the forex market is re-pricing. Investors need not overly worry about short-term fluctuations but should focus on the macro factors driving RMB trends—China-U.S. relations, dollar strength, Chinese economic data, and monetary policy orientation. The forex market is primarily macro-driven, with transparent data from various countries, large trading volumes, and support for two-way trading, making it relatively fair and advantageous. By mastering these core factors influencing the RMB trend, investors can significantly improve their profit prospects.