Is there an appreciation opportunity for the US dollar against the RMB in 2026? Understand the four key factors to predict future exchange rate trends

Renminbi Exchange Rate Turns: Signals Behind the Near 14-Month High

Since December 2025, the trend of the USD to RMB exchange rate has shown a clear shift. As the Federal Reserve initiates a rate-cutting cycle, the RMB has strengthened against the USD, breaking through the 7.05 level, with a low of 7.0404, hitting a new high in nearly 14 months. What does this change signify? How should investors interpret the current market situation?

Looking back over 2025, the RMB exchange rate has experienced considerable fluctuations. In the first half of the year, under the dual pressures of global tariff policy uncertainties and a strong US dollar index, the USD to RMB once depreciated past 7.40, reaching the highest point since the “8.11 reform” in 2015. However, in the second half, as China-US trade negotiations steadily advanced and the US dollar index weakened, the RMB began to show resilience, gradually rebounding to the current level.

It is noteworthy that the onshore and offshore markets have shown divergence. In the onshore market (CNY), the USD to RMB exchange rate fluctuated bidirectionally between 7.04 and 7.3 throughout the year, while in the offshore market (CNH), it fluctuated between 7.02 and 7.4, reflecting international investors’ more sensitive response to the RMB.

Four Core Variables Driving USD to RMB Trends

To forecast future exchange rate movements, investors need to monitor multiple factors simultaneously. These variables interact and jointly determine the long-term trend of the RMB.

The Key Role of the US Dollar Index

In the first half of 2025, the US dollar index fell from 109 at the start of the year to about 98, a decline of nearly 10%, marking the weakest first half since the 1970s. However, as market expectations of Fed rate cuts cooled and the US economy outperformed expectations, the dollar index re-approached the 100 mark in November. By December, with the Fed’s rate cuts implemented and future policy leaning dovish, the dollar index fell again, reaching a low of 97.869, fluctuating in the 97.8-98.5 range.

The logic behind this is: a moderate strengthening of the dollar usually exerts downward pressure on the RMB, while a weakening dollar supports RMB appreciation. However, positive effects from China-US agreements temporarily offset the short-term volatility of the dollar.

Ongoing Evolution of China-US Trade Relations

In the latest round of China-US trade negotiations, both sides reached a ceasefire consensus. The US reduced tariffs related to fentanyl on Chinese goods from 20% to 10%, and suspended the 24% ad valorem tariffs in the reciprocal tariffs until November 2026. Meanwhile, both countries paused measures such as rare earth export controls and port fees, and expanded agricultural product purchases.

However, the durability of this ceasefire remains uncertain. The quick breakdown of a similar agreement reached in Geneva in May 2025 serves as a warning to investors. The development of China-US trade relations will directly influence the long-term trend of the RMB—if the status quo persists, the RMB environment may stabilize; if tensions escalate, the RMB could weaken.

Federal Reserve and People’s Bank Policy Directions

The US Federal Reserve’s monetary policy is crucial for the dollar’s trend. The magnitude and pace of rate cuts in 2025 will be constrained by inflation data, employment performance, and policies of the Trump administration. If inflation remains persistently above target, the Fed may slow down rate cuts or maintain high interest rates, supporting dollar strength; conversely, if economic slowdown becomes evident, accelerated rate cuts will weaken the dollar.

The People’s Bank of China tends to maintain an accommodative policy to support economic recovery. Against the backdrop of a sluggish real estate market 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 easing policies are combined with strong fiscal stimulus that stabilizes China’s economy, the RMB could be supported in the long term.

RMB Internationalization and Policy Guidance

The increasing use of the RMB in global trade settlements, along with currency swap agreements with other countries, may provide long-term support. In the short term, the US dollar’s status as the primary reserve currency remains difficult to challenge. Notably, the PBOC influences the exchange rate through the central parity mechanism (including counter-cyclical factors), which has a more immediate impact on short-term rates, but the medium- and long-term trend still depends on the overall market direction.

International Investment Banks Generally Optimistic About RMB Appreciation

Currently, the market widely believes that the RMB depreciation cycle that began in 2022 has ended, and the RMB has officially entered a new phase of medium- to long-term appreciation. Several international investment banks’ latest forecasts reinforce this view.

Deutsche Bank suggests that the recent strength of the RMB against the USD may signal the start of a long-term appreciation cycle. They estimate the RMB/USD exchange rate will rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026.

Goldman Sachs offers a more aggressive forecast. Kamakshya Trivedi, the head of global FX strategy at Goldman Sachs, states that the real effective exchange rate (REER) of the RMB is undervalued by 12% relative to its ten-year average, with an even greater undervaluation against the USD at 15%. Based on this assessment, Goldman Sachs has significantly raised its 12-month USD to RMB forecast from 7.35 to 7.0, suggesting that the RMB “breaking 7” could happen sooner than the market expects.

Goldman’s reasoning is that China’s strong export performance supports the RMB, and they anticipate the Chinese government will prefer to use other policy tools to stimulate the economy rather than resorting to currency depreciation strategies.

Timing Considerations for Investing in RMB-Related Currency Pairs

Regarding the feasibility of investing in RMB, three key understandings are necessary at this stage:

In the short term, the RMB is expected to maintain a relatively strong stance, with overall inverse correlation to the USD and limited amplitude, fluctuating within a range. The possibility of rapid appreciation into below 7.0 before the end of 2025 is low, implying that aggressive entry strategies may carry higher risks.

Investors should focus on three major variables: the trend of the US dollar index, signals from the RMB central parity rate adjustments, and the strength and pace of China’s stabilizing growth policies. The combination of changes in these factors will determine short-term trading opportunities.

Long-term, if the supporting factors above persist, the probability of RMB appreciation in 2026 is higher, but timing entry still requires precise judgment of market rhythm.

Four-Dimensional Investment Framework for Long-Term RMB Trend

Beyond short-term news and policy movements, investors can assess the medium- to long-term USD to RMB trend through the following four systemic dimensions:

Cyclical Changes in China’s Monetary Policy

The People’s Bank of China’s monetary policy directly influences money supply and demand. Easing (rate cuts or reserve requirement reductions) increases liquidity and tends to depreciate the RMB; tightening has the opposite effect. Historically, in 2014, the PBOC launched an easing cycle, lowering loan rates six times consecutively, during which the USD to RMB rose from around 6 to a peak of 7.4, illustrating the profound impact of monetary policy on the exchange rate.

Relative Performance of China’s Economic Fundamentals

When China’s economy remains stable or outperforms other emerging markets, it attracts sustained foreign investment inflows, increasing demand for the RMB and supporting appreciation. Conversely, economic weakness exerts downward pressure. Key indicators include:

• Quarterly GDP growth, reflecting macroeconomic health and important for investment decisions;
• PMI (Purchasing Managers’ Index), released monthly, with official PMI focusing on large and medium enterprises, and Caixin PMI emphasizing small and medium enterprises;
• CPI (Consumer Price Index), measuring inflation and indirectly indicating economic heat;
• Urban fixed asset investment data, reflecting domestic demand momentum.

Relative Trends of the US Dollar and Major Non-US Currencies

The USD index’s movement against the RMB is directly influential. The monetary policies of the Fed and the European Central Bank are often key drivers. For example, in early 2017, the Eurozone’s strong economic recovery and signals of tightening monetary policy led to euro appreciation, while the USD index fell 15% that year, with USD/RMB also declining accordingly, demonstrating their high correlation.

Official Policy Guidance on the Exchange Rate

Unlike freely floating currencies, the RMB has undergone multiple exchange rate management reforms. On May 26, 2017, the PBOC introduced the “counter-cyclical factor” into the central parity quotation model, strengthening official guidance. This mechanism has a more immediate impact on short-term rates, but the medium- and long-term trend still depends on the overall currency market direction.

Historical Perspective: Insights from Five Years of RMB Exchange Rate Cycles

Analyzing the RMB/USD performance over the past five years can clarify the current situation.

2020: Appreciation Cycle Amid the Pandemic

At the start of 2020, USD/RMB was in the 6.9-7.0 range. Due to China-US trade tensions and the pandemic, it depreciated to 7.18 in May. But as China quickly controlled the pandemic and led the recovery, and with the Fed cutting rates to near zero, the widening interest gap supported RMB rebound, ending the year around 6.50, an appreciation of about 6%.

2021: Export-Driven Strength

China’s exports remained strong, and the economy improved. The Fed maintained a cautious stance, and the USD index stayed low. USD/RMB fluctuated narrowly between 6.35 and 6.58, averaging about 6.45 for the year, maintaining relative strength.

2022: Fed Rate Hikes and Depreciation

The exchange rate rose from 6.35 to over 7.25, a decline of about 8%, the largest in recent years. Aggressive Fed rate hikes and soaring dollar index pushed USD higher against RMB; simultaneously, China’s pandemic policies and real estate crisis dampened economic confidence.

2023: Consolidation and Pressure

USD/RMB fluctuated between 6.83 and 7.35, averaging around 7.0, ending slightly higher at 7.1. China’s post-pandemic recovery was weaker than expected, with ongoing real estate debt issues and sluggish consumption; US high interest rates kept the dollar index in the 100-104 range, exerting pressure on the RMB.

2024: Increased Volatility

The weakening of the dollar eased RMB pressure, with fiscal stimulus and real estate measures boosting market confidence. The rate rose from 7.1 to around 7.3 mid-year, and offshore RMB broke below 7.10 in August, reaching a six-month high, with overall volatility increasing.

Unique Trajectory of Offshore RMB and Its Implications

Since CNH is traded freely in international markets like Hong Kong and Singapore, with capital flows less restricted, it reflects global market sentiment more sensitively. In contrast, CNY is influenced by capital controls and the PBOC’s central parity guidance, resulting in more moderate fluctuations.

In 2025, despite multiple fluctuations, offshore RMB (CNH) showed an overall upward trend. Early in the year, US tariffs and the dollar index soaring to 109.85 caused CNH to dip below 7.36. To stabilize the market, the PBOC issued 60 billion yuan in offshore bills to absorb liquidity and managed the central parity. Recently, with easing China-US trade tensions, supportive growth policies, and Fed rate cut expectations rising, CNH has strengthened significantly. On December 15, CNH broke through 7.05 against the USD, rebounding over 4% from the year’s high, reaching a 13-month high. This trend has reinforced investor expectations of medium-term RMB appreciation.

Key Insights and Investment Recommendations

In summary, as China enters a period of monetary easing, the USD/RMB trend exhibits clear structural features. Historical experience suggests that policy-driven exchange rate cycles can last a decade, with short- and medium-term fluctuations influenced by the dollar and other events, but the overall trend remains relatively clear.

If investors can grasp the four core factors influencing RMB trends—central bank policies, economic fundamentals, dollar movements, and official guidance—they can significantly improve profit prospects. FX markets are primarily macro-driven, with transparent data releases and large trading volumes, making them relatively fair and advantageous for individual investors. Over the next six months, close monitoring of Fed policies, China-US trade developments, and PBOC signals will be crucial to seize medium-term RMB appreciation opportunities.