The RMB exchange rate breaks through a psychological barrier, with market expectations of continued strength in 2026.

Current Situation: RMB against USD hits annual low

December 25th, the RMB to USD exchange rate hit its lowest point of the year. The offshore RMB (USD/CNH) fell to 6.9965, marking a record since September 2024, while the onshore RMB (USD/CNY) dropped even further to 7.0051, the lowest since May 2023. This “breaking 7” moment signifies an important psychological milestone in RMB appreciation and also reflects a new market perception of RMB exchange rate trends.

Three forces driving RMB appreciation

The strong performance of the RMB exchange rate at year-end is not accidental but the result of multiple factors working together.

First is the overall weakening of the US dollar. Influenced by the Federal Reserve’s rate cuts, the US dollar index has declined by over 10% this year, with a drop of more than 2% in the past month alone. Under the wave of de-dollarization, the dollar remains under pressure, which in turn supports the relative strength of the RMB.

Second is the policy guidance from the People’s Bank of China (PBOC). Throughout the year, the PBOC has continuously raised the RMB midpoint rate (the reference rate), sending a clear signal of support for RMB appreciation. This policy tilt has created upward space for RMB exchange rate.

Third is the year-end foreign exchange settlement effect. China’s large trade surplus accumulated in 2025 was concentrated at year-end, with enterprises completing their annual foreign exchange settlements, increasing demand for USD conversion and pushing up RMB appreciation pressure.

Additionally, the PBOC’s reluctance to further cut interest rates and the tight offshore liquidity caused by the holiday season have also contributed to RMB’s rise.

The deeper significance of appreciation

Wang Qing, Chief Macro Analyst at Dongfang Jincheng, pointed out: “The weakening of the dollar and seasonal foreign exchange conversions by exporters have driven the RMB stronger. Continued RMB appreciation will help enhance China’s asset attractiveness to foreign investors.”

This means that the rise in RMB exchange rate is not just a numerical change but also symbolizes an increase in the valuation of Chinese assets in the international market.

Will it continue to strengthen in 2026?

Although the RMB has already broken through a psychological barrier, many international institutions believe that the appreciation potential has not been fully unleashed. From trade-weighted and economic fundamentals perspectives, the RMB exchange rate still has room for undervaluation.

Goldman Sachs’s analysis is particularly noteworthy. The firm indicates that the RMB is undervalued by 25% relative to economic fundamentals. Based on this logic, the RMB’s appreciation could far exceed market expectations. Goldman Sachs forecasts that by mid-2026, the RMB will rise to around 6.90, with a possibility of reaching a new high of 6.85 by the end of the year.

ANZ Bank’s senior strategist Xing Zhaopeng adopts a more conservative stance, believing that in the first half of 2026, the RMB against USD will fluctuate within the range of 6.95-7.00.

The most optimistic forecast comes from Bank of America. The institution believes that easing US-China relations will improve prospects for Chinese exporters, expanding the USD conversion scale for Chinese companies in 2026. It expects the RMB to potentially reach 6.80 by the end of the year.

Based on the views of multiple institutions, the overall trend of RMB appreciation in 2026 is taking shape, with differences mainly in the magnitude and timing of appreciation. Investors should continue to monitor central bank policy guidance and international exchange rate movements, which will determine the actual performance of the RMB exchange rate.