RMB Appreciation Cycle Begins? A Complete Analysis of Exchange Rate Trends for 2025-2026

Renminbi Enters a Turning Point, Signs of Appreciation Are Evident

Since 2025, the RMB exchange rate has shown a clear turnaround. The USD/RMB has fluctuated bidirectionally within the 7.04-7.3 range, with an overall appreciation of about 3% for the year. By mid-December, the RMB against the US dollar surged past the 7.05 mark, reaching as high as 7.0404 so far, marking the highest level in nearly 14 months. This change breaks the depreciation trend of the past three years, and the market is beginning to reassess the medium-term outlook for the RMB.

The offshore RMB (CNH) has also performed remarkably. Trading more freely in international markets, CNH has fluctuated within the 7.02-7.4 range this year, reacting faster and better reflecting global investors’ true views on the RMB. From a high of 7.36 at the start of the year, CNH has rebounded over 4%, indicating a shift in international capital sentiment.

Why Did the RMB Suddenly Rebound? Three Major Drivers Are Gaining Momentum

Dollar Index Reversal, RMB Gets a Breather

In the first half of the year, the dollar index fell from 109 to 98, a decline of nearly 10%, the weakest first half performance since the 1970s. Although the dollar briefly rebounded above 100 in November, after the Federal Reserve cut interest rates in December, the dollar index fell again to 97.869, retreating to the 97.8-98.5 range.

A weakening dollar usually supports the RMB. When the dollar loses attractiveness, international investors reallocate to other major currencies, benefiting the RMB naturally. This also explains why the RMB and USD tend to move inversely—when one strengthens, the other weakens.

Easing US-China Relations Send Positive Signals

Recent progress has been made in US-China trade negotiations. In the latest round, the US reduced tariffs related to fentanyl from 20% to 10%, and suspended the 24% additional tariffs until November 2026. The two countries also agreed to temporarily halt measures such as rare earth export controls and port fees, and to expand US agricultural purchases.

Although similar agreements in the past (such as the Geneva agreement in May) have quickly fallen apart, the current easing atmosphere still supports market confidence. The stability of US-China trade relations has become the most important external factor in judging the RMB’s trend—if tensions escalate again, the RMB will come under renewed pressure.

Federal Reserve Turns Dovish, Dollar Loses Support

In the second half of 2024, the Fed began cutting rates, with expectations of further easing in 2025. The dovish stance directly weakens the dollar’s attractiveness, and the RMB and the dollar index usually move in opposite directions. When the Fed leans toward rate cuts, the cost of holding dollars decreases, prompting international capital to seek alternative currencies, with the RMB being one of the options.

How Do Investment Banks View It? Multiple Institutions Are Collectively Optimistic About the RMB

Deutsche Bank analysts suggest that the recent strength of the RMB against the dollar may indicate that a long-term appreciation cycle has begun. The bank forecasts the USD/RMB exchange rate to reach 7.0 by the end of 2025 and further drop to 6.7 by the end of 2026.

Goldman Sachs’s global FX strategist Kamakshya Trivedi issued a more aggressive outlook in a May report. Goldman significantly raised its forecast for the next 12 months, from 7.35 to 7.0. Their reasoning is: The real effective exchange rate of the RMB is undervalued by 12% relative to the ten-year average, and 15% undervalued against the dollar. Based on this undervaluation and progress in US-China negotiations, Goldman believes the RMB could break below 7.0 faster than the market expects.

Goldman also emphasizes that China’s strong export performance will continue to support the RMB, while the Chinese government prefers to stimulate the economy through other policy tools rather than relying on currency depreciation.

How Will the RMB and TWD Perform? Indirect Benefits from RMB Appreciation

The RMB/TWD exchange rate is closely related to USD/RMB. When the RMB appreciates against the dollar, the New Taiwan Dollar (TWD) also faces some pressure relative to the RMB, since both are Asian emerging market currencies often traded together. However, as an economy with relative independence, the TWD’s movement is also influenced by Taiwan’s economic data, central bank policies, and US-Taiwan relations. In the short term, the direct impact of RMB appreciation on the RMB/TWD exchange rate is limited.

Three Key Points to Watch in the Next 12-18 Months

To judge the RMB’s future trend, focus on:

USD Index Movement — If the dollar index remains in the 97-100 range, the RMB will continue to be supported; if the dollar strengthens again and breaks above 100, the RMB may give back some gains.

Signals on the RMB Central Parity Rate Adjustment — The People’s Bank of China (PBOC) guides the exchange rate through a daily central parity rate model (including an anti-cyclical factor). The official stance influences short-term fluctuations.

China’s Policy for Stable Growth — If fiscal and monetary policies continue to support economic stability, it will be a long-term positive for the RMB; if policy efforts weaken, the RMB’s appreciation will be limited.

Investment Advice: Timing Is Critical

Currently, there are opportunities in RMB-related currencies, but timing is key:

• Short-term (next 3 months): The RMB is expected to remain relatively strong, but rapid appreciation below 7.0 is less likely; expect more of a range-bound movement.
• Medium-term (6-12 months): If US-China relations continue to ease and the dollar index does not reverse, reaching around 7.0 is a plausible target.
• Long-term (beyond 12 months): The RMB is likely to enter a new appreciation cycle, with potential to reach 6.7-6.9.

How to Judge RMB Exchange Rate Trends? Four Dimensions to Monitor

Instead of passively following predictions, it’s better to understand the core factors influencing the RMB:

1. China’s Monetary Policy

The People’s Bank of China’s rate cuts and reserve requirement reductions directly impact money supply. Easing policies (rate cuts/reserve ratio cuts) increase supply, weakening the RMB; tightening policies (rate hikes/raising reserve requirements) reduce liquidity, strengthening the RMB. This is the fundamental logic behind exchange rate fluctuations. For example, in 2014, the PBOC entered an easing cycle with six rate cuts and continuous reserve requirement reductions, and USD/RMB rose from 6 to 7.4, validating this pattern.

2. China’s Economic Data

Economic strength attracts foreign capital inflows, increasing RMB demand and supporting the currency; economic weakness has the opposite effect. Key indicators include:

• GDP: Quarterly releases reflecting overall macroeconomic conditions
• PMI: Monthly releases; official PMI for large enterprises, Caixin PMI for small and medium enterprises
• CPI: Monthly; measures inflation, reflects economic heat
• Fixed Asset Investment: Monthly (cumulative for Jan-Feb at the start of the year), indicates investment vitality

3. USD Trends and Federal Reserve Policies

The USD’s movement directly determines USD/RMB fluctuations. The policies of the Federal Reserve and the European Central Bank are most critical. In 2017, Europe’s economy recovered unexpectedly, and the ECB signaled tightening, pushing the euro higher, while the dollar index fell 15% for the year. During the same period, USD/RMB also declined significantly, showing a high correlation.

4. Official Guidance on the Exchange Rate

The RMB differs from freely convertible currencies. The PBOC guides the exchange rate through a daily central parity rate model (closing price + a basket of currencies + anti-cyclical factor). In the short term, this mechanism has a noticeable influence, but the medium- and long-term trend is still determined by the fundamentals of the currency market.

Five-Year Review: What Has the RMB Experienced?

2020 — Fluctuated between 6.9-7.0 at the start of the year, depreciated to 7.18 in May due to US-China trade tensions and the pandemic, but rebounded strongly to 6.50 by year-end as China quickly controlled the pandemic and the Fed cut rates to near zero, appreciating about 6% for the year.

2021 — Strong exports and economic recovery, with the PBOC maintaining prudent policies. USD/RMB traded narrowly between 6.35-6.58, averaging 6.45 for the year, with the RMB relatively strong.

2022 — Significant depreciation. USD/RMB rose from 6.35 to over 7.25, a decline of about 8%, the largest in recent years. Behind this were aggressive Fed rate hikes, soaring dollar index, and China’s pandemic policies dragging on the economy and worsening the property crisis.

2023 — RMB continued under pressure. USD/RMB fluctuated between 6.83-7.35, averaging around 7.0. China’s post-pandemic recovery was below expectations, and the property debt crisis persisted. US high interest rates remained, and the RMB appreciated slightly to 7.1 over the year.

2024 — The dollar weakened, supporting the RMB. China’s fiscal and real estate policies boosted confidence. USD/RMB rose from 7.1 to 7.3 mid-year, offshore RMB broke below 7.10 in August, and volatility increased throughout the year.

Conclusion: A New Cycle Has Started, But It’s Not a Straight Uptrend

As China enters a monetary easing cycle, USD/CNH has shown a clear trend. Based on similar historical policy cycles, this can last about ten years, with short- to medium-term fluctuations influenced by dollar movements and external events.

Investors who grasp the four core dimensions—central bank policies, economic data, dollar trends, and official guidance—can significantly improve their FX investment success rate. The FX market is macro-driven, with transparent data, large trading volumes, and two-way trading, making it relatively fair and full of opportunities for individual investors.

The RMB appreciation cycle has begun to show initial signs, but rapid appreciation will depend on economic fundamentals confirming the trend. Patience and precise timing are the keys to winning.