[2026 USD to RMB Exchange Rate Outlook] Is the RMB appreciation cycle starting? In-depth analysis of the future trend of USD to RMB exchange rate

Turning Point Emerges: Renminbi Begins Rebound

Entering 2025, the USD/CNY exchange rate shows clear signs of a shift. In the first half of the year, amid global tariff policy uncertainties and a strong US dollar index, offshore RMB briefly fell to 7.40, hitting a new low since the 2015 currency reform; however, the situation reversed in the second half.

In mid-December, as the Federal Reserve initiated a rate cut cycle, the RMB against the dollar surged past the 7.05 level, continuing to rise to 7.0404, hitting a nearly 14-month high. This change reflects not only an improvement in US-China negotiations but also suggests that the USD/CNY exchange rate may have reached a stage bottom.

Onshore markets saw USD/CNY fluctuate within 7.04 to 7.3 throughout the year, appreciating about 3%, demonstrating resilience; offshore markets experienced slightly larger swings, oscillating between 7.02 and 7.4, but overall trend remained consistent.

Four Core Factors Driving USD/CNY Exchange Rate

US Dollar Index: Weakening Trend Gradually Establishing

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. Although it briefly rebounded in November due to easing expectations of rate cuts, breaking through the 100 mark several times, after December, with the Fed’s rate cuts materializing and dovish sentiment strengthening, the dollar index retreated again, reaching a low of 97.869.

The weakening of the dollar index is a double-edged sword for RMB—moderate dollar strength in the short term can pressure the yuan, but positive effects from US-China agreements are gradually offsetting this impact. This ebb and flow suggest that future volatility of USD/CNY will depend more on policy than purely technical factors.

US-China Economic and Trade Relations: From Confrontation to Relaxation

Positive signals emerged from negotiations in Kuala Lumpur, with both sides reaching a new trade truce—US will reduce tariffs on Chinese goods related to fentanyl from 20% to 10%, and the 24% ad valorem tariff component will be suspended until November 2026. Meanwhile, both sides also paused export controls on rare earths and port fee measures, and expanded agricultural product purchases.

However, the stability of such agreements remains uncertain. The May Geneva agreement, for example, was short-lived and quickly invalidated. Therefore, the future evolution of US-China trade relations remains the most important external variable in judging USD/CNY trends. If current conditions persist, the RMB environment will stabilize; if frictions escalate, downward pressure will reemerge.

Federal Reserve Monetary Policy: The Key to USD Strength or Weakness

The Fed’s policy stance is crucial for USD movement. Although signals of rate cuts have been sent in late 2024, the magnitude and pace of cuts in 2025 will depend on inflation data, employment conditions, and policies of the Trump administration. Persistently high inflation may cause the Fed to slow or halt rate cuts, supporting a stronger dollar; conversely, economic slowdown could accelerate rate cuts and weaken the dollar.

A key rule: RMB and the dollar index usually move inversely. As long as the Fed maintains a dovish stance, USD/CNY will have upward support.

PBOC Policies and RMB Internationalization

China’s central bank favors a loose monetary policy to support economic recovery, especially amid a sluggish property market. While rate cuts or reserve requirement ratio reductions may temporarily weaken the RMB, strong fiscal stimulus and economic stabilization will, in the long run, boost the yuan.

Additionally, expanding RMB usage in global trade settlements and increasing swap agreements with other countries provide long-term support for RMB stability. Although the US dollar’s reserve currency status remains difficult to challenge in the short term, RMB internationalization is an unstoppable trend.

How Major International Investment Banks View USD/CNY Outlook

Market consensus suggests that the RMB depreciation cycle starting in 2022 has ended, and a new medium-to-long-term appreciation trajectory is beginning.

Deutsche Bank’s View: The bank’s analysis indicates that recent RMB strength against the dollar signals the start of a new cycle. Their forecast: USD/CNY will rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026, assuming US-China negotiations remain stable.

Goldman Sachs’ Assessment: The bank’s global FX strategy head’s report in May caused market waves. Goldman raised its 12-month USD/CNY forecast sharply from 7.35 to 7.0, expecting the yuan to “break 7” sooner than market anticipated.

Goldman’s rationale: The current real effective exchange rate of RMB is 12% undervalued relative to its 10-year average, with an even greater undervaluation of 15% against the dollar. Given progress in US-China negotiations and the reality of RMB being undervalued, a move to 7.0 within 12 months is reasonable. Strong Chinese exports will support the yuan, and the government prefers using other policy tools rather than currency depreciation to stimulate growth.

Is Now a Good Time to Enter USD/CNY?

Based on current conditions, trading in RMB-related currency pairs does present profit opportunities, but timing is critical.

Short-term outlook: RMB will likely remain relatively strong but tend to fluctuate inversely with the dollar within a limited range. The probability of rapid appreciation below 7.0 before the end of 2025 is low.

Key variables to monitor are: USD index trend, PBOC’s midpoint rate adjustments, and China’s policy efforts to stabilize growth and their implementation pace. These factors will directly influence short- and medium-term USD/CNY volatility.

Exclusive Investment Approach: How to Independently Judge RMB Exchange Rate Trends

Instead of passively waiting for analysis, learn to analyze independently. The following four dimensions form an eternal framework for observing RMB exchange rate movements:

1. PBOC Monetary Policy Orientation

The central bank is a key guide for exchange rate trends. Its monetary policy stance directly impacts money supply, thus influencing the exchange rate. Looser policies (rate cuts, reserve ratio reductions) increase liquidity expectations, weakening the RMB; tighter policies (rate hikes, reserve ratio hikes) tighten liquidity, supporting the yuan.

Historical example: Since November 2014, the PBOC cut rates 6 times and significantly lowered reserve ratios (from 18% to below 8%), during which USD/CNY rose from 6.3 to over 7.4, an increase of nearly 15%, fully illustrating the profound influence of monetary policy.

2. China’s Economic Fundamentals Data

When the economy is strong, foreign capital inflows increase demand for RMB, strengthening the yuan; during economic weakness, capital outflows cause depreciation. Key data to monitor include:

• GDP quarterly figures: Reflect macroeconomic health, important for investment decisions
• PMI indices (both official and Caixin): Manufacturing PMI indicates large enterprise conditions; services PMI reflects new economic vitality; SME PMI is a leading indicator of economic activity
• CPI data: Measures inflation; high inflation may trigger monetary policy adjustments
• Fixed asset investment: Indicates economic activity intensity, directly affecting RMB trends

3. USD Index and Fed Policy Linkage

USD movement directly determines USD/CNY fluctuations, with Fed and ECB policies being primary drivers of the dollar index.

Classic example: Early 2017, after the Eurozone’s strongest recovery post-euro debt crisis, GDP growth outpaced the US, and the ECB signaled tightening, causing the euro to rise. The dollar index then fell 15% over the year, and USD/CNY also declined, demonstrating high correlation.

4. Official Exchange Rate Policy

Unlike fully floating currencies, RMB exchange rate management has undergone multiple reforms. In May 2017, the PBOC revised the midpoint rate model to include a “closing price + a basket of currencies + counter-cyclical factor,” strengthening official guidance.

While this mechanism influences short-term volatility, the medium- and long-term trend still follows market direction. Investors should pay attention to both official stance and market signals for accurate judgment.

Five-Year Review: Historical Trends of USD/CNY

2020: Rebound Amid Pandemic and Policy Stimulus

At the start of 2020, USD/CNY fluctuated between 6.9 and 7.0. US-China trade tensions and pandemic shocks caused RMB to weaken, reaching 7.18 in May. However, as China controlled the pandemic early and led economic recovery, coupled with Fed’s near-zero rates and China’s steady policies, the widening interest rate differential led to a strong rebound by year-end, with USD/CNY dropping to around 6.50, appreciating about 6% for the year.

2021: Export Boom Drives RMB Strength

China’s exports remained robust, economy improved, and the central bank maintained steady policies. USD/CNY traded narrowly between 6.35 and 6.58, with an average around 6.45, maintaining a strong trend.

2022: Aggressive Fed Rate Hikes Cause RMB Depreciation

The Fed’s aggressive hikes and soaring dollar index pushed USD/CNY above 7.25, depreciating about 8% for the year—the largest decline in recent years. Meanwhile, China’s strict pandemic policies hampered growth, and a property crisis deepened, undermining market confidence.

2023: Continued Pressure in High-Interest Environment

USD/CNY fluctuated between 6.83 and 7.35, averaging about 7.0, ending slightly higher at 7.1. China’s post-pandemic recovery was below expectations, property debt risks persisted, and consumption remained weak; US high rates kept the dollar index between 100 and 104, exerting overall pressure on the yuan.

2024: Dollar Weakness Offers Relief

The dollar index weakened, easing RMB pressure. China’s fiscal stimulus and property support measures boosted confidence. USD/CNY rose from 7.1 to around 7.3 mid-year, with offshore RMB briefly breaking below 7.10, hitting a six-month high, and overall volatility increased.

Offshore RMB’s Unique Performance

The difference between CNH (offshore RMB) and CNY (onshore RMB) warrants attention. Since CNH trades freely in markets like Hong Kong and Singapore, capital flows are unrestricted, reflecting global sentiment more directly, leading to more volatile movements; CNY, under capital controls and guided by the PBOC’s midpoint, remains relatively stable.

2025 CNH Outlook: Despite multiple fluctuations, the overall trend is upward. Early in the year, amid US tariff shocks and a spike in the dollar index to 109.85, CNH briefly broke below 7.36, prompting the PBOC to implement stabilization measures, including issuing 60 billion yuan offshore bonds and tightening the midpoint.

Recently, as US-China trade dialogue eased, China’s steady growth policies took effect, and Fed rate cut expectations increased, CNH appreciated significantly. On December 15, CNH broke through 7.05 against the dollar, rebounding over 4% from the early-year high, reaching a 13-month high. This strong trend indicates optimistic offshore market sentiment toward the RMB outlook.

Investment Summary

As China enters a monetary easing cycle, USD/CNY is showing a clear trend. Based on similar historical policy cycles, such trends could last a decade, with short-term fluctuations influenced by geopolitical events, but the overall direction is set.

By understanding these four key factors, investors can greatly improve their chances of capturing USD/CNY opportunities. The FX market is driven by macro factors, with transparent economic data from various countries, large trading volumes, and two-way trading, providing a fair environment for small and medium investors. Success depends on systematic thinking rather than emotional trading, enabling steady profits during RMB appreciation cycles.