The RMB exchange rate reaches a new high! How will the future trend develop?

Recently, the RMB against the US dollar broke the psychological barrier of 7, drawing significant attention in the investment circle. On December 25th, the offshore RMB fell to a low of 6.9965, while the onshore RMB also dipped to 7.0051, both hitting recent lows. What exactly is happening behind this?

The Three Main Drivers of RMB Appreciation

To understand why the RMB exchange rate is strengthening, we need to look at three core factors.

First is the weakening of the US dollar itself. The Federal Reserve’s interest rate cut cycle has begun, and the de-dollarization wave continues to advance. The US dollar index has already fallen over 10% this year, and in the past month, it has dropped more than 2%. As the dollar weakens, the RMB naturally becomes easier to appreciate.

Second is the People’s Bank of China actively guiding the RMB to appreciate. Throughout 2024, the central bank has continuously raised the midpoint of the RMB exchange rate (reference rate), signaling a clear intention to appreciate. This is not a spontaneous market phenomenon but a proactive policy adjustment.

Additionally, there is the year-end foreign exchange settlement effect. China’s export trade surplus has been quite substantial this year. As the year-end approaches, export companies concentrate on settling foreign exchange, converting large amounts of US dollars into RMB, which also boosts the RMB appreciation wave.

Furthermore, the central bank has not further cut interest rates, and the offshore liquidity has become somewhat tight due to the holiday season. These factors indirectly support the RMB’s rise.

What Do Experts Say?

Wang Qing, Chief Macroeconomic Analyst at Orient Securities, pointed out, “The weakening of the US dollar and seasonal foreign exchange conversions by exporters are the main drivers of RMB strength. Continued appreciation will enhance China’s capital market attractiveness to overseas investors.”

This judgment is quite crucial — RMB appreciation is not just about exchange rate numbers; it also involves capital flows and investment attractiveness.

Will the RMB Rise Again in 2026?

Although the RMB has performed well recently, many institutions believe that based on economic fundamentals and trade-weighted indices, the RMB is actually undervalued.

ANZ Bank senior strategist Xing Zhaopeng predicts that in the first half of 2026, USD to RMB may fluctuate between 6.95 and 7.00.

Goldman Sachs’s forecast is more aggressive. They believe the RMB is undervalued by about 25% relative to economic fundamentals, expecting USD to RMB to fall to 6.90 by mid-2026, and further decline to 6.85 by the end of the year.

Bank of America offers a different perspective — improved US-China relations will enhance export prospects, expanding the scale of dollar sales by Chinese exporters. They forecast USD to RMB will fall to 6.80 by the end of 2026.

It appears that many institutions are betting on the RMB continuing to appreciate in 2026, although the magnitude and timing vary. For investors and trade companies concerned with RMB exchange rate movements, this trend warrants ongoing observation.