Renminbi Appreciation New Cycle: The US Dollar Exchange Rate Hits a New Low, How Much Room Is There Until 2026?

Recently, the RMB to USD exchange rate hit a new low for the period, and market expectations for appreciation in the future have intensified. On December 25th, the USD to offshore RMB (USD/CNH) fell to 6.9965, the lowest level since September 2024; the USD to onshore RMB (USD/CNY) even dropped to 7.0051, the best performance since May 2023. The RMB has broken through the psychological threshold of 7, but what exactly is driving this momentum?

The Three Major Drivers of RMB Appreciation

This round of appreciation is not accidental but the result of multiple factors resonating.

A Significant Weakening of the US Dollar Index is the primary factor. Under the influence of the Federal Reserve’s interest rate cuts and the global de-dollarization wave, the dollar index has fallen more than 10% this year, with a decline of over 2% in the past month alone. The relative weakness of the dollar directly benefits the RMB’s appreciation.

Support from Central Bank Policies should not be overlooked. Since the beginning of the year, China’s central bank has continuously adjusted the RMB midpoint (reference rate), guiding RMB appreciation expectations by steadily raising the midpoint. This moderate yet firm policy orientation has created a supportive institutional environment for appreciation.

Year-End Foreign Exchange Settlement Effect has become a recent direct catalyst. China’s trade surplus accumulated significantly by 2025, and as the year-end approaches, companies are consolidating foreign exchange settlements, converting large amounts of USD into RMB, which increases RMB supply and accelerates the appreciation process.

Additionally, the cautious stance of the central bank in not further cutting interest rates and the tight offshore liquidity during the holiday season have also contributed to the RMB’s rise to some extent. Wang Qing, Chief Macro Analyst at Orient Securities, pointed out that, “The weakness of the dollar and seasonal foreign exchange conversions by exporters have driven the RMB’s strength, and continued RMB appreciation will help enhance China’s capital market attractiveness to foreign investors.”

Is There Room for Further RMB Appreciation in 2026?

From a fundamental perspective, the RMB’s appreciation potential may have just begun to open up. Evaluations by multiple international institutions indicate that, from trade-weighted and economic deflation perspectives, the RMB is still significantly undervalued.

Goldman Sachs’s view is the most aggressive, believing that the RMB is undervalued by 25% relative to economic fundamentals. Based on this judgment, Goldman Sachs expects the USD to RMB exchange rate to fall to 6.90 by mid-2026, and further to 6.85 by the end of the year.

Bank of America analyzes from the perspective of export momentum. The bank believes that, as tensions between the US and China ease, the outlook for Chinese exporters improves, which will further expand USD selling in 2026. Bank of America’s target price is for USD to RMB to fall to 6.80 by the end of 2026, implying nearly 3% more appreciation potential.

ANZ Bank’s forecast is relatively moderate. Its senior strategist Xing Zhaopeng believes that in the first half of 2026, USD to RMB may fluctuate within the range of 6.95-7.00, indicating that the pace of appreciation will gradually slow down.

Although predictions from different institutions vary, the consensus is clear: the RMB’s appreciation trend will continue into the new year.