Has the RMB appreciation cycle started? Analysis of the 2025-2026 exchange rate trends and the outlook for TWD-RMB exchange rates

The Renminbi is Brewing a New Wave of Appreciation Experts Predict “Breaking 7” Imminent

Since entering 2025, the RMB exchange rate has shown a strength different from the past three years. The USD to RMB has gradually retreated from its early-year high, reaching 7.0404 by mid-December, hitting a 14-month high. What does this shift mean? Experts generally believe that the RMB depreciation cycle that began in 2022 may be coming to an end, and a new medium- to long-term appreciation trend is forming.

From a data perspective, the RMB experienced a significant recovery in the first half of 2025. The USD to RMB fluctuated bidirectionally between 7.04 and 7.3, significantly narrowing from the 7.3-7.4 range in the second half of 2024. The offshore market performed even more notably, with CNH fluctuating between 7.02 and 7.4, reacting more sensitively to international market sentiment. The full-year appreciation was about 3%, reversing the depreciation trend of the past three years.

Particularly noteworthy is that after the Federal Reserve started a rate cut cycle in December, the RMB broke through the 7.05 level strongly, then continued to rise to 7.0404, creating a new high in this appreciation phase. Behind this rally are factors such as the weakening of the US dollar index and market re-pricing of the RMB’s medium-term appreciation prospects.

The Three Main Drivers of RMB Appreciation and the Forex Market Pattern

Regarding the future direction of the RMB and USD, market experts point out three supporting factors that will drive the exchange rate higher:

1. China’s Export Resilience Continues to Show

Despite sluggish global economic growth, China’s exports maintain relatively steady growth, providing a solid demand foundation for the RMB. Strong exports usually mean more foreign capital inflows, which in turn push up the RMB value.

2. Reallocation of RMB Assets by Foreign Investors

After adjustments in 2023-2024, international investment institutions’ valuation of RMB assets has improved. As the undervaluation of the RMB becomes increasingly recognized, the trend of foreign capital re-entering RMB assets has gradually established.

3. Structural Weakness of the US Dollar Index

The start of the Fed’s rate cut cycle implies weakening long-term support for the dollar. In the first half of 2025, the USD index fell from 109 to 98, a nearly 10% decline, marking the weakest first half since the 1970s. Although it rebounded in November due to cooling expectations of rate cuts, overall, the dollar index faces structural pressure.

Predictions from International Investment Banks on RMB Appreciation

Several top global investment banks have revised upward their expectations for RMB appreciation:

Deutsche Bank’s analysis suggests that the recent strength of the RMB against the dollar may signal the start of a new long-term appreciation cycle. The bank forecasts the RMB will appreciate to 7.0 by the end of 2025 and further to 6.7 by the end of 2026.

Goldman Sachs’ Global FX Strategist Kamakshya Trivedi caused a stir in the investment community with a May report. Goldman Sachs sharply raised its forecast for the next 12 months of USD to RMB from 7.35 to 7.0. The bank believes the real effective exchange rate of the RMB is undervalued by 12% relative to the ten-year average, and 15% undervalued against the dollar, providing ample room for appreciation. Goldman Sachs also pointed out that the Chinese government prefers to use other policy tools to boost the economy rather than pursue currency depreciation, which will support the RMB from a policy perspective.

Core Variables Influencing Exchange Rate Trends

Volatility of the US Dollar

In the first half of 2025, the USD index fell from 109 to 98, but rebounded in the second half due to easing rate cut expectations. Despite this, after the Fed’s rate cut in December, the USD index fell again to 97.869. This oscillation indicates that the USD remains relatively weak and insufficient to exert sustained upward pressure on the RMB.

The Critical Role of US-China Trade Negotiations

In the latest round of talks in Kuala Lumpur, both sides reached a trade truce. The US agreed to reduce tariffs on fentanyl from 20% to 10%, and to suspend the 24% tariff increase until November 2026. Both countries also agreed to delay rare earth export controls and expand US agricultural purchases. However, the rapid breakdown of the Geneva agreement in May 2025 sounded an alarm—whether this truce can be maintained long-term remains to be seen. If tensions escalate again, the RMB could face renewed downward pressure.

Guidance from Central Bank Policies

The trajectory of the Federal Reserve’s monetary policy directly determines the USD trend. If inflation remains above expectations, the Fed may slow down rate cuts, supporting the dollar; otherwise, the dollar will weaken. Meanwhile, the People’s Bank of China’s monetary policy stance also has far-reaching impacts. Although easing policies may temporarily pressure the RMB downward, if combined with strong fiscal stimulus that stabilizes the economy, the RMB will be supported in the long run.

Long-term Support for RMB Internationalization

The increasing use of the RMB in global trade settlements and currency swap agreements with other countries will support RMB stability over the long term. However, in the short term, the US dollar’s status as the primary reserve currency remains difficult to challenge.

Is Now a Good Time to Buy RMB? Short- and Medium-term Investment Judgments

For investors, the key is to seize the right timing:

Short-term Outlook (before the end of 2025)

The RMB is expected to remain relatively strong but will fluctuate within a range. Against the backdrop of USD bidirectional movements, it is less likely for the RMB to quickly break below 7.0. Investors should focus on three key variables: USD index trends, signals from the RMB midpoint rate adjustments, and the momentum and pace of China’s stabilizing growth policies.

Medium-term Outlook (2026)

Based on forecasts from international investment banks and fundamental analysis, the RMB against the USD has the potential to appreciate to the 6.7-7.0 range. For investors bullish on RMB and related currency pairs, this period offers certain profit opportunities.

Investment Logic for Currency Fluctuations

To accurately judge the RMB trend, investors should analyze from the following four dimensions:

1. The Tightening and Loosening Cycle of China’s Monetary Policy

The People’s Bank of China’s rate cuts and reserve requirement ratio reductions directly influence money supply and exchange rates. When policies are loose, the RMB faces short-term downward pressure; when policies tighten, liquidity contraction can stimulate RMB appreciation. Historical example: from November 2014, the PBOC cut rates six times and lowered reserve ratios multiple times, during which USD to RMB rose from 6 to 7.4, demonstrating the profound impact of policy.

2. China’s Economic Fundamentals

Stable economic growth attracts continuous foreign investment inflows, increasing demand for RMB and pushing it higher; conversely, slowing growth weakens the RMB. Key indicators include: quarterly GDP growth, PMI monthly data, CPI inflation, and urban fixed asset investment scale.

3. Long-term Trend of the US Dollar Index

The monetary policies of the Fed and ECB are central to USD movements. For example, in 2017, the Eurozone’s stronger-than-US recovery and ECB’s tightening signals caused the USD index to fall 15%, and USD/RMB also declined accordingly, reflecting high correlation.

4. Official Guidance on Exchange Rate Direction

Since 1978 reform and opening-up, the RMB has undergone multiple exchange rate management reforms. After introducing the “counter-cyclical factor” in 2017, the PBOC’s guiding role through the daily midpoint rate has strengthened. Although this mechanism has short-term influence, the medium- to long-term trend depends on the overall direction of the currency market.

Five-Year Review of the Exchange Rate: From Depreciation Cycle to Turning Point of Appreciation

2020: Amid the pandemic, the RMB first depreciated then appreciated. Early in the year, it fluctuated between 6.9-7.0, briefly weakening to 7.18 in May. As China controlled the pandemic and economic recovery accelerated, coupled with Fed rate cuts and steady Chinese policies, the interest rate differential widened, and the RMB rebounded strongly to 6.50 by year-end, appreciating about 6%.

2021: Strong exports, steady PBOC policies, and a low USD index kept USD/RMB in a narrow range of 6.35-6.58, with an average around 6.45, showing relative strength.

2022: The Fed’s aggressive rate hikes pushed the USD index above 109, while China’s pandemic measures and real estate crisis dragged on the economy. USD/RMB surged from 6.35 to over 7.25, depreciating about 8%, the largest decline in recent years.

2023: Economic recovery fell short of expectations, real estate risks persisted, and US high interest rates remained, with USD/RMB fluctuating between 6.83-7.35, averaging around 7.0. By year-end, it rose to about 7.1, with RMB under pressure.

2024: The weakening dollar, fiscal stimulus, and support for real estate boosted confidence, pushing the exchange rate from 7.1 to 7.3 mid-year. Offshore RMB broke 7.10 in August, reaching a six-month high, with increased volatility throughout the year.

Offshore RMB (CNH) Trend Analysis

Offshore RMB (CNH) and onshore RMB (CNY) show notable differences. CNH, traded freely in markets like Hong Kong and Singapore, is less constrained by capital controls and more reflective of global sentiment, with higher volatility. CNY, influenced by capital controls, is guided by the People’s Bank of China through the daily midpoint rate and interventions.

In 2025, CNH/USD also shows a volatile upward trend. Early in the year, due to US tariff policies and USD index soaring to 109.85, CNH briefly weakened past 7.36. The PBOC took measures to stabilize the market, including issuing 60 billion yuan offshore bonds to recover liquidity and controlling the midpoint rate. Recently, with easing US-China dialogue, economic stabilization policies, and rising Fed rate cut expectations, CNH has strengthened significantly, breaking 7.05 on December 15, rebounding over 4% from the year’s high, hitting a 13-month high.

Conclusion and Investment Advice

As China enters a sustained easing cycle in monetary policy, the USD/RMB trend has shown clear directional features. Historically, such policy-driven cycles can last up to ten years, with short- to medium-term fluctuations driven by USD movements and external events, but the overall trend remains relatively clear.

Investors who grasp the four core factors influencing RMB trends—central bank policies, economic fundamentals, USD index, and official guidance—can greatly improve trading profitability. The forex market’s macro-driven nature, transparency, large trading volume, and two-way trading make it relatively fair and attractive for individual investors.