Has the RMB appreciation cycle started? A detailed analysis of the exchange rate trend for 2025-2026

Since 2025, the RMB exchange rate trend has shown a clear reversal characteristic, ending the previous three consecutive years of depreciation. The USD to RMB exchange rate fluctuated within the 7.1 to 7.3 range, with an appreciation of 2.40% for the year; in the offshore market, the USD to offshore RMB fluctuated between 7.1 and 7.4, with a cumulative appreciation of 2.80%. Entering November, driven by factors such as the improvement in China-U.S. trade relations and rising expectations of Federal Reserve rate cuts, the RMB appreciated against the US dollar to below 7.08, hitting a near one-year high.

Review of Exchange Rate Trends This Year

In the first half of 2025, increased uncertainty in global tariffs and a sustained strengthening of the US dollar index led to the offshore RMB breaking through the 7.40 barrier, with the USD to RMB hitting a new record since the 2015 “8.11 reform.”

In the second half, as China-U.S. trade negotiations gradually advanced and relations showed signs of easing, while the US dollar index weakened, the RMB exchange rate gradually stabilized and began to appreciate modestly. Compared to the general appreciation of other major non-US currencies like the euro against the RMB, the RMB’s performance against the USD also demonstrated relative strength, with market sentiment stabilizing.

Will the RMB continue to appreciate in the future?

Regarding recent trends, there are profit opportunities in trading RMB-related currency pairs, with the key being to seize the right timing. In the short term, the RMB is expected to maintain a relatively strong stance, fluctuating within a limited range with inverse movement to the US dollar. The rapid appreciation below 7.0 before the end of 2025 is less likely.

Future focus should be on three major uncertainties: the trend of the US dollar index, signals from the RMB central parity rate adjustments, and the strength and pace of China’s steady growth policies.

Analysis of RMB Exchange Rate Trends Over the Past Five Years

From 2020 to 2025, the RMB exchange rate experienced significant cyclical changes:

2020: In early 2020, fluctuating between 6.9 and 7.0, impacted by US-China trade tensions and the pandemic, it briefly depreciated to 7.18 in May. As China quickly controlled the pandemic and led economic recovery, coupled with the Fed’s near-zero interest rates, the interest rate differential supported the RMB, which rebounded strongly to around 6.50 by year-end, appreciating about 6% for the year.

2021: China’s exports remained strong, and the economy improved. The central bank maintained a prudent policy, with the US dollar index hovering low. USD to RMB fluctuated narrowly between 6.35 and 6.58, with an average around 6.45, maintaining relative strength.

2022: The Fed’s aggressive rate hikes caused the US dollar index to surge to high levels. USD to RMB rose from 6.35 to over 7.25, depreciating about 8% for the year, the largest decline in recent years. Meanwhile, China’s strict pandemic policies hampered economic growth, and a real estate crisis worsened market confidence.

2023: USD to RMB fluctuated between 6.83 and 7.35, with an average around 7.0, ending slightly higher at about 7.1. China’s post-pandemic economic recovery fell short of expectations, with ongoing real estate debt crises and sluggish consumption putting pressure on the RMB.

2024: The weakening of the US dollar eased RMB pressure, with fiscal stimulus and support measures for real estate boosting market confidence. USD to RMB rose from 7.1 to around 7.3 by mid-year, with increased volatility throughout the year.

Outlook for 2025-2026 Exchange Rates

Currently, the market generally believes that the RMB exchange rate may be at a cyclical turning point, ending the depreciation cycle that began in 2022, and the RMB has the opportunity to enter a new phase of medium- to long-term appreciation. Looking ahead to the end of 2025 and into 2026, three key factors could drive RMB strength:

• Continued resilience in China’s export growth
• Gradual reallocation of foreign capital into RMB assets
• Structural weakening of the US dollar index

Many international investment banks are optimistic. Deutsche Bank analysts indicate that the RMB is entering a long-term appreciation cycle, estimating the USD to RMB rate will rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026. Morgan Stanley also expects moderate RMB appreciation, forecasting that by 2026, the US dollar index may fall back to 89, with the USD to RMB rate potentially reaching around 7.05.

Goldman Sachs’ global FX strategy head has significantly revised upward their USD to RMB forecast for the next 12 months to 7.0, predicting that the “break 7” point may arrive sooner than market expects. Goldman Sachs believes the real effective exchange rate of the RMB is undervalued by 12% relative to the ten-year average, with a more pronounced undervaluation against the dollar. Based on progress in China-U.S. trade negotiations and the current undervaluation, the RMB is expected to appreciate to 7.0 against the dollar over the next 12 months.

Key Factors Influencing the RMB Exchange Rate

US Dollar Index Trend: In the first five months of 2025, the dollar index fell by 9%, marking the worst start to a year on record. Markets believe that the upcoming Fed rate cut cycle will lead to lower short-term interest rates, and the dollar may further depreciate over the next 12 months, which could support continued appreciation of Asian currencies including the RMB.

China-U.S. Relations and Trade Policies: The US-China tariff dispute remains a key variable affecting USD to RMB exchange rate movements. If future negotiations ease tariffs, the RMB could be supported; if tensions escalate, downward pressure on the RMB will persist.

Federal Reserve Policy Direction: The Fed’s monetary policy is crucial for the dollar’s trend. If inflation remains above target, the Fed may slow rate cuts or maintain high interest rates, supporting a stronger dollar. Conversely, economic slowdown could accelerate rate cuts and weaken the dollar. The RMB and the dollar index usually move inversely.

People’s Bank of China Monetary Policy: China’s monetary policy tends to remain accommodative to support economic recovery, especially amid weak real estate and insufficient domestic demand. The PBOC may cut interest rates or reserve requirements to inject liquidity, which generally exerts downward pressure on the RMB. However, if accommodative policies and stronger fiscal stimulus stabilize the economy, the RMB could be supported in the long term.

RMB Internationalization: Increasing use of RMB in global trade settlements and currency swap agreements with other countries may support RMB stability over the long term. In the short term, the US dollar’s status as the primary reserve currency remains difficult to challenge.

How to Assess RMB Exchange Rate Trends

To accurately grasp RMB movements, investors can consider the following aspects:

1. PBOC Monetary Policy

The People’s Bank of China’s monetary policy directly influences money supply and thus the exchange rate. When monetary policy is easing (e.g., rate cuts or reserve requirement reductions), increased supply tends to weaken the RMB; tightening (e.g., rate hikes or reserve ratio increases) tends to strengthen it.

2. China’s Economic Data

China’s economic performance significantly impacts the RMB. Stable or outperforming growth attracts foreign investment, increasing demand for RMB and strengthening it; slowing growth reduces foreign inflows. Key indicators include GDP, PMI, CPI, and fixed asset investment.

3. US Dollar Trends

The USD’s movement directly affects USD to RMB rates. The Fed and ECB’s policies are key drivers. A weaker dollar index generally correlates with RMB appreciation. Other currencies like the euro also reflect global capital flows.

4. Official Exchange Rate Policies

Unlike freely floating currencies, the RMB has experienced multiple exchange rate reforms. The PBOC adjusts the central parity rate, influencing short-term rates, but the medium- to long-term trend depends on the overall market direction.

How to Invest in RMB

Investors can participate in RMB exchange rate investments through various channels:

• Bank Channels: Opening foreign exchange accounts with local or international banks for trading and investment
• Forex Trading: Using regulated forex platforms for two-way trading, some offering leverage to amplify gains or losses
• Securities Firms: Some securities companies provide forex trading services
• Futures Markets: Engaging in forex futures via futures exchanges

When investing in forex products, it is advisable to choose regulated platforms, set prudent leverage levels, and employ risk management tools like stop-loss and take-profit orders.

Summary

As China enters a sustained easing cycle, the USD to RMB exchange rate is showing a clear upward trend. Based on historical experience, such policy-driven cycles can last up to ten years, with short- to medium-term fluctuations influenced by USD movements and other events. By focusing on key factors affecting RMB—such as central bank policies, economic data, USD index, and China-U.S. relations—investors can significantly improve their chances of profit.

The forex market is primarily driven by macro factors, with data transparency and large trading volumes facilitating a relatively fair environment for investors. Understanding the logic behind major currency pairs like EUR/RMB will aid in making informed investment decisions.