Is the RMB appreciation cycle beginning? A comprehensive analysis of the USD to RMB trend through 2026

Is the Renminbi rebound imminent, and has the USD to RMB exchange rate reversal become a certainty?

2025 is full of turning points for RMB investors. After experiencing three consecutive years of depreciation from 2022 to 2024, the RMB finally has a chance to turn around. Recent data over the past few months confirms this: the USD to RMB exchange rate has gradually fallen from its high at the beginning of the year, and on December 15th, it broke through the 7.05 level strongly, then reached a new high in nearly 14 months at 7.0404, with market confidence clearly warming.

The logic behind this is straightforward—progress in US-China trade negotiations has eased market panic, the US dollar index has shifted from strength to moderation, and multiple factors have combined, leading RMB into a new upward cycle.

What are the key driving factors of the USD to RMB exchange rate?

To predict the future trend of RMB, it is essential to understand the core variables influencing the exchange rate. From a macro perspective, these mainly focus on four aspects:

The rise and fall of the US Dollar Index

The strength of the dollar directly determines the direction of USD to RMB. In the first half of 2025, the dollar index fell from 109 to 98, a decline of nearly 10%, marking the weakest first half since the 1970s. However, after November, market expectations of Fed rate cuts changed, and the dollar index rebounded back to the 100 mark. After the Fed’s rate cut in December, the dollar index weakened again, reaching a low of 97.869, falling back into the 97.8-98.5 range. This volatility has continuously impacted RMB.

The trajectory of US-China trade relations

In the latest round of talks in Kuala Lumpur, both sides reached a ceasefire consensus— the US will reduce tariffs related to fentanyl from 20% to 10%, and the 24% additional tariffs will be suspended until November 2026. Controls on rare earths and port fees are also temporarily halted, while agricultural product purchases are expanded. These developments have undoubtedly eased market nerves, but historical lessons remind us that such agreements are not always stable. The agreement reached in Geneva in May was quickly broken, and whether this ceasefire can be maintained long-term remains the biggest external uncertainty. If tensions escalate again, RMB will come under renewed pressure.

Federal Reserve policy stance

The Fed’s monetary policy is crucial to the dollar’s direction. Currently, the Fed has signaled rate cuts, but the magnitude and pace in 2025 will still be influenced by inflation, employment data, and policies under Trump. If inflation remains high, the Fed may slow down rate cuts, supporting a stronger dollar; conversely, economic slowdown could accelerate rate cuts, weakening the dollar. This has a significant impact on the USD to RMB trend.

People’s Bank of China and economic policies

The PBOC tends to adopt an easing monetary policy to support economic recovery, especially amid weak real estate and insufficient domestic demand. Rate cuts or reserve requirement ratio reductions will release liquidity, usually exerting short-term depreciation pressure on RMB. However, if these easing measures are combined with strong fiscal stimulus that stabilizes the economy, RMB will be supported in the long run. The resilience of Chinese exports also provides a foundation for RMB support.

Market consensus: RMB appreciation cycle has begun

International investment banks have shown a clear shift in outlook for RMB. Many institutions believe that the depreciation cycle starting in 2022 is nearing its end, and RMB is entering a medium- to long-term appreciation trajectory.

Deutsche Bank’s forecast indicates that recent RMB strength may signal the start of a long-term appreciation cycle. The bank projects USD to RMB will rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026, implying an appreciation of about 3-4% over the next year or so.

Goldman Sachs’s view is even more aggressive. Its global FX strategy head has significantly upgraded expectations, adjusting the 12-month USD to RMB forecast from 7.35 to 7.0. Goldman’s logic is based on the RMB’s real effective exchange rate being undervalued by 12% compared to its ten-year average, with a 15% undervaluation against the dollar. Considering the progress in US-China negotiations and the RMB’s valuation gap, Goldman expects the appreciation to come faster than market expectations.

Additionally, Goldman emphasizes that China’s strong export performance will continue to support RMB, and the Chinese government is more inclined to boost the economy through fiscal and reform measures rather than currency depreciation strategies.

Is now a good time to buy RMB-related products?

From a short-term perspective, the answer is conditionally favorable. The RMB is expected to remain relatively strong recently, generally oscillating within a limited range with inverse correlation to the dollar. However, several realities should be recognized:

• The probability of quickly falling below 7.0 before the end of 2025 is limited
• Short-term trading requires precise timing
• Close attention should be paid to USD index fluctuations, RMB midpoint signals, and Chinese policy intensity

For medium- to long-term investors, the value of RMB assets is increasing, especially as the macro asset rotation makes RMB appreciation logic more established.

How to judge RMB’s future trend from four dimensions

Rather than passively waiting for predictions, it’s better to actively grasp the judgment methods. The following four dimensions can help investors independently assess the outlook for USD to RMB:

Dimension 1: Central bank monetary policy orientation

Every move by the PBOC directly impacts RMB supply and demand. When the central bank implements easing policies (rate cuts, reserve ratio reductions), increased liquidity tends to weaken RMB; when policies tighten (rate hikes, reserve requirement increases), liquidity tightening can support RMB. The most convincing historical example is November 2014, when the PBOC began continuous rate cuts and large reserve ratio reductions, causing USD to RMB to rise from 6 to 7.4, demonstrating the profound influence of monetary policy on the exchange rate.

Dimension 2: Comparison of economic data strength

China’s economic data determine foreign capital flows. When China’s economy grows steadily and outperforms other emerging markets, foreign investment inflows increase, boosting RMB demand and strengthening the exchange rate; if growth slows or attractiveness diminishes, foreign capital shifts elsewhere, pressuring RMB. Key indicators include:

• GDP: quarterly releases, reflecting macroeconomic conditions
• PMI: monthly releases, with official and Caixin data focusing on large and small/medium enterprises respectively
• CPI: monthly data, measuring inflation and indirectly indicating economic heat
• Urban fixed asset investment: released monthly (cumulative for Jan-Feb at year start), indicating investment scale

Dimension 3: Long-term trend of the US Dollar Index

USD and RMB are highly negatively correlated. The classic example is early 2017—strong recovery in Eurozone economy, GDP growth surpassing the US, and the European Central Bank signaling tightening, pushing up the euro and depressing the dollar index. The USD index fell 15% over the year, and USD to RMB also declined, confirming their linkage.

Dimension 4: Official guidance on exchange rate

Unlike freely floating currencies, RMB has undergone multiple exchange rate management reforms. The May 2017 introduction of the “countercyclical factor” mechanism adjusted the RMB midpoint quoting model from a simple “closing price + basket currency change” to include official regulatory factors. This strengthened the central bank’s ability to guide short-term exchange rate movements, but the medium- to long-term trend still depends on the overall direction of the currency market.

Review of RMB trends over the past five years: the trajectory of cycle shifts

2020: Reversal amid the pandemic

At the start of the year, USD to RMB was in the 6.9-7.0 range. In May, due to US-China trade tensions and pandemic impact, it briefly depreciated to 7.18. As China effectively controlled the pandemic and led economic recovery, coupled with the Fed’s near-zero rate cuts and China’s steady policies, the interest rate differential widened, supporting RMB. By year-end, RMB rebounded strongly to 6.50, appreciating about 6% for the year.

2021: Steady resilience

China’s exports remained strong, the economy was improving, and the central bank maintained a steady stance. USD to RMB fluctuated narrowly between 6.35-6.58, with an annual average around 6.45, keeping RMB relatively strong.

2022: Beginning of depreciation

A turning point. The Fed’s aggressive rate hikes pushed the dollar index sharply higher, and USD to RMB rose from 6.35 to above 7.25, depreciating about 8% for the year, the largest decline in recent years. Meanwhile, strict pandemic controls and a real estate crisis dragged down growth, crushing market confidence.

2023: Hovering at the bottom

USD to RMB fluctuated between 6.83-7.35, with an average around 7.0, ending slightly higher at 7.1. China’s post-pandemic recovery was below expectations, real estate debt issues persisted, and consumption remained weak; the US maintained high interest rates, with the dollar index between 100-104, RMB under continued pressure.

2024: Increased volatility

A weaker dollar eased RMB pressure, and supportive fiscal and real estate policies boosted market expectations. USD to RMB rose from 7.1 to around 7.3 mid-year, with offshore RMB briefly breaking below 7.10 to hit a six-month high in August, with increased volatility.

Offshore RMB (CNH): a more sensitive market thermometer

Because it trades in Hong Kong, Singapore, and other offshore markets, CNH is not subject to capital controls and has freer capital flows, making it more sensitive to global market sentiment. Therefore, CNH fluctuations are usually greater than the onshore CNY guided by official policies.

The 2025 CNH trend confirms this. Early in the year, impacted by US tariffs and the dollar soaring to 109.85, offshore RMB briefly broke above 7.36. The PBOC issued 60 billion yuan in offshore bills to absorb liquidity and strictly managed the midpoint.

Recently, the situation reversed—US-China trade easing, China’s growth stabilization policies taking effect, and Fed rate cut expectations rising, causing CNH to strengthen rapidly. On December 15th, CNH against USD broke 7.05, rebounding more than 4% from the year’s high, reaching a nearly 13-month high. This offshore market signal often foreshadows subsequent onshore RMB movements.

Comprehensive judgment of RMB’s future trend

As China enters a sustained easing cycle in monetary policy, USD to RMB exchange rate is showing clear cyclical patterns. Based on historical experience, such policy-driven cycles can last a decade, with short- and medium-term fluctuations caused by dollar volatility and external events.

Currently, the conditions for an appreciation cycle are maturing:

1. RMB valuation is relatively low, with room for appreciation
2. Progress in US-China negotiations reduces downside risks
3. Structural weakness of the dollar is initially forming
4. China’s export resilience provides fundamental support

For investors, foreign exchange markets are mainly driven by macro factors. Data transparency is high, trading volume is large, and both directions are supported, making FX investment relatively fair and full of opportunities. Mastering these core factors influencing RMB can greatly improve trading profitability.

The future of USD to RMB is promising, but risks must also be watched. Staying alert and flexible is the key to winning in this cycle.