The RMB's rising momentum is strong! The USD to RMB exchange rate hits a new low. Will the strong trend continue into 2026?

Mid-December, the RMB against the US dollar experienced a significant turning point—USD/CNH (offshore US dollar to offshore RMB) broke through the psychological threshold to 6.9965, hitting a new low since September 2024; USD/CNY (onshore US dollar to onshore RMB) also fell to 7.0051, the first time since May 2023 that this level has been touched. This change indicates that market expectations for RMB appreciation are strengthening.

The Three Main Drivers Behind RMB Appreciation

The current strength of the RMB is not accidental but the result of multiple factors resonating.

US dollar depreciation has become the main driver. Under the impact of the Federal Reserve’s continued rate cuts and the global de-dollarization wave, the US dollar index has fallen more than 10% year-to-date, with recent monthly declines exceeding 2%. The weak dollar directly benefits the RMB’s appreciation against the US dollar.

The People’s Bank of China’s policy guidance is clear and forceful. This year, the central bank has frequently increased the midpoint of the RMB exchange rate (the reference rate), actively guiding the RMB to gradually appreciate. This orderly appreciation arrangement satisfies market demand while avoiding sharp fluctuations.

Year-end foreign exchange settlement cycle combined with liquidity changes. The massive trade surplus accumulated by China in 2025 is concentrated for release at year-end, significantly increasing the settlement needs of enterprises and exporters, creating upward pressure on the USD to RMB exchange rate. Meanwhile, the central bank has maintained restraint on interest rate cuts, and holiday effects have led to tighter liquidity in the offshore market, all of which have contributed to RMB appreciation.

Wang Qing, Chief Macro Analyst at Orient Securities, pointed out: “The weakness of the US dollar and the seasonal foreign exchange settlement activities of export enterprises have formed a combined force driving the RMB stronger. Continued RMB appreciation will enhance China’s capital market attractiveness to overseas investors, which is beneficial for cross-border capital flows in the long term.”

Fundamentals: Is the RMB Undervalued?

Despite the recent sharp rise, from a deeper economic fundamental perspective, the market generally believes that the RMB still has room to rise.

Goldman Sachs’s view is the most optimistic—its research indicates that the RMB is undervalued by 25% relative to economic fundamentals. The firm expects that by mid-2026, USD/CNY will fall to 6.90; by the end of 2026, this target will be further adjusted to 6.85.

Bank of America, from a trade perspective, believes that easing US-China tensions will benefit the outlook for export companies. The bank expects that by 2026, the scale of USD selling by Chinese exporters will further expand, pushing USD/CNY down to 6.80 by year-end.

ANZ Bank’s senior strategist Xing Zhaopeng holds a relatively moderate outlook, expecting USD/CNY to fluctuate between 6.95 and 7.00 in the first half of 2026.

2026: The Key Year for RMB Appreciation

Based on forecasts from multiple institutions, the probability of RMB continuing to appreciate against the USD in 2026 is high, but the magnitude of appreciation may shift from a unilateral upward trend to a range-bound fluctuation. This depends on several core variables: the pace of Federal Reserve policy, the stability of China’s economic fundamentals, changes in trade balances, and the reasonable equilibrium point of USD to RMB exchange rate.

For ordinary investors, while paying attention to the RMB appreciation trend, it is also important to rationally view the potential volatility risks. As the exchange rate approaches the generally accepted reasonable level, the marginal driving force for further appreciation may gradually diminish.