The "Double-Edged Sword" of the Renminbi Appreciation Engine: Economic Imbalance Dilemma Amid Strong Trade Surplus

Data is poor but appreciating, the market is re-evaluating RMB risk

Despite weak macroeconomic data from China in November, the offshore Renminbi (USD/CNH) has strengthened against the trend, continuing to approach the 7.00 psychological threshold on Wednesday, and testing below 7.05 at times. This “asynchronous” phenomenon reflects a fundamental change in investor perception of RMB depreciation risk.

Analysts point out that market awareness has shifted: As long as the dollar is not strong and policy stance is clear, the RMB may not need to depreciate to relieve pressure. This shift breaks the traditional “weak economic data → currency depreciation” logic.

$1 trillion trade surplus: triggering export-focused currency conversions

China’s trade surplus for the first 11 months has already reached $1 trillion, and this massive foreign exchange position is driving a wave of “sequential cycle currency conversions.” Over the past two years, due to the inverted US-China interest rate differential, export companies held large dollar positions. Now, with the Fed’s rate cut expectations becoming clearer and the dollar index falling below 102 support, corporate currency exchange sentiment has undergone a significant change.

A senior forex trader based in Shanghai revealed: “When the exchange rate drops from 7.10 to 7.05, companies start to worry—if they don’t convert back to RMB now, the cost will be higher when they pay year-end bonuses. This creates a self-fulfilling appreciation expectation.” ING Forex analyst Chris Turner also agrees: “The RMB is regaining attention because exporters are seeking the optimal levels to sell foreign exchange gains.”

Rare signals from the central bank: from stability to active guidance

The core driver of this trend is a clear change in the policy stance of the People’s Bank of China (PBoC). Recently, the PBoC set the USD/CNY midpoint above the model estimate, an operation rarely seen in the past three years. Historically, the PBoC mostly kept the fixing below the model value to maintain stability, but this move clearly changes the policy logic.

OCBC Bank described this as a “thoughtful move,” aimed at guiding the RMB on a gradual appreciation path, avoiding sharp fluctuations and not rushing to accept a strong currency. This exposes the central bank’s strategic intent: using appreciation as a tool for economic restructuring.

Can RMB appreciation become a “rebalancing engine” catalyst?

BBH (Brown Brothers Harriman) analysis hits the mark: a strong RMB can reduce import costs, substantially enhance household purchasing power, and create conditions for domestic demand transformation. In the current real estate market adjustment period and amid global inflation shadows, this monetary policy has multiple strategic implications:

• Providing buffers for domestic demand growth
• Hedging against imported inflation pressures
• Forcing export industries to upgrade and innovate

However, Standard Chartered and Goldman Sachs have issued warnings. 7.00 is not just a psychological threshold but also a profit red line for exporters. If appreciation accelerates too quickly, it could weaken export competitiveness and trigger further economic cooling, leading to a paradox of “appreciation suppressing growth.”

Two major variables in 2026: US dollar cycle and US-China tariff risks

The sustainability of RMB appreciation depends on the evolution of the international environment. In the short term, markets will closely watch whether the PBoC adjusts the magnitude of the midpoint increase. If the central bank sets a higher midpoint to ease appreciation, the exchange rate may enter a consolidation phase.

In medium to long-term forecasts, ING believes that if the Fed cuts interest rates twice again in 2026 as expected, the dollar’s weakness could persist, and USD/CNH might fall below 7.00. But the long-term risk list is also extensive:

• Tariff escalation risk: Goldman Sachs predicts that if US-China trade friction intensifies, USD/CNY could reverse and rise to 7.40-7.50
• Commodity volatility: Global commodity price swings could impact the RMB
• Financial stability: While China is unlikely to actively devalue significantly, it must balance export competitiveness with financial risks

New variables for investors: currency strategic value becoming a core pricing factor

Currently, this trend is essentially a “expectation trade”—international capital is pre-positioning for a mid-term scenario. If the US-China interest rate differential narrows, the dollar cycle weakens, and policy communication remains stable over the next two years, the RMB could gradually recover. This is not a one-way bet but a tactical positioning under risk-controlled conditions.

Global investors are closely monitoring the 7.00 warning line. If the appreciation accelerates too rapidly and threatens export profits, the PBoC may respond by raising the foreign exchange reserve requirement ratio (RRR) or strengthening macroprudential management to cool the market.

This implies that the valuation logic of Chinese assets needs updating: beyond traditional growth and interest rate dimensions, the strategic value of currency and the underlying reform commitments are becoming an important new variable. Investors need to recognize that the RMB appreciation path is not only a reflection of economic restructuring but also a barometer of global commodity allocation and US-China relations evolution.