Renminbi Exchange Rate Cycle Turning Point: 2026 Appreciation Opportunities and Multiple Risk Factors Analysis

Key Turning Points in 2025

Since 2025, the performance of the RMB against the US dollar has shown clear signs of policy shifts. After three consecutive years of depreciation, this year’s exchange rate has fluctuated between 7.1 and 7.3, with a cumulative appreciation of 2.40% for the year. The latest trend is even more striking—driven by easing US-China trade relations and rising expectations of Federal Reserve rate cuts, the RMB has appreciated to below 7.08 against the dollar, touching a low of 7.0765, the highest in nearly a year.

In the first half of the year, it was once pressured to the 7.40 level, with USD/RMB even reaching a new record since the 2015 “8.11 reform.” However, in the second half, as trade negotiations progressed and the US dollar index weakened, the RMB began to recover gradually. This shift is particularly significant against the backdrop of a general appreciation of non-US currencies—marking a transition from passive depreciation to active appreciation, with market sentiment clearly improving.

Historical Perspective: Review of the Exchange Rate Cycles in the Past Five Years

2020-2021: Appreciation Cycle
During the early pandemic, USD/RMB fluctuated between 6.9 and 7.0, but as China led the pandemic control, economic recovery accelerated, and the Federal Reserve cut rates to zero, the RMB rebounded strongly to around 6.50. In 2021, China’s exports remained robust, and the central bank maintained a prudent policy stance. The US dollar index remained low, with RMB fluctuating narrowly between 6.35 and 6.58, averaging about 6.45 for the year.

2022-2023: Depreciation Pressure
2022 marked a turning point—aggressive rate hikes by the Fed and a surge in the dollar index to high levels, coupled with strict pandemic controls and a deepening real estate crisis in China, caused the RMB to depreciate from 6.35 to over 7.25, with an annual decline of about 8%. In 2023, the RMB continued under pressure, fluctuating between 6.83 and 7.35, ending the year around 7.1.

2024: Increased Volatility
The weakening of the US dollar eased pressure, and supportive policies for China’s fiscal and real estate sectors boosted expectations. The exchange rate fluctuated from 7.1 to 7.3, with offshore RMB briefly breaking below 7.10 to reach a six-month high. Volatility increased significantly during this period, and markets began to anticipate that the depreciation cycle might be nearing its end.

Consensus Expectations from International Investment Institutions

Several top investment banks hold optimistic views on the RMB’s trajectory into 2026:

Deutsche Bank expects the RMB to enter a long-term appreciation cycle, targeting 7.0 by the end of 2025 and further strengthening to 6.7 by the end of 2026.

Morgan Stanley sees a moderate appreciation, with the US dollar remaining weak over the next two years, predicting the dollar index will fall back to 89 by 2026, with the RMB/USD exchange rate potentially reaching around 7.05.

Goldman Sachs is more aggressive, raising its 12-month USD/RMB forecast from 7.35 to 7.0, suggesting the “breaking 7” moment for the RMB could accelerate. Their analysis indicates the real effective exchange rate of the RMB is undervalued by 12%, and the dollar is undervalued by 15%. Based on trade negotiations and valuation recovery logic, there is a high probability that the RMB will appreciate to 7.0 within the next 12 months.

The consensus among these three institutions is that strong Chinese exports, policies favoring fiscal rather than depreciation stimulation, and the current undervaluation of the RMB all underpin the potential for appreciation.

EUR/RMB Exchange Rate Trends and the Global Currency Landscape

In an environment of relative US dollar weakness, the EUR/RMB exchange rate has also shown a structural upward trend. Although the Eurozone economy faces growth pressures, as the world’s second-largest reserve currency, the EUR/RMB exchange rate often reflects the broader de-dollarization trend globally. When the RMB enters an appreciation cycle, the EUR/RMB also benefits from the overall strength of non-US currencies. This correlation indicates that RMB exchange rate movements are not only influenced by US-China relations but also mirror deeper changes in the international monetary system.

Four Core Factors Influencing Exchange Rate Trends

US Dollar Index Trends
In the first five months of 2025, the US dollar index plummeted 9%, marking the worst start in history. Market expectations of a Fed rate cut cycle have driven short-term interest rates lower, leaving room for further USD depreciation over the next 12 months. This suggests ample upward momentum for Asian currencies, including the RMB.

US-China Trade Negotiation Progress
Although negotiations resumed after the London talks, the durability of this truce remains uncertain. The US-China tariff war remains a key variable affecting the exchange rate—easing negotiations will support the RMB, while escalating tensions will exert downward pressure.

Federal Reserve Policy Pace
In the second half of 2024, the Fed signaled potential rate cuts, but the magnitude and pace in 2025 may be constrained by inflation, employment, and political factors. High inflation could slow the pace of rate cuts; a significant economic slowdown could accelerate them, weakening the dollar. The RMB typically moves inversely to the US dollar index.

PBOC Policy Orientation
Easing monetary policy supports economic recovery. Rate cuts and reserve requirement ratio reductions usually cause short-term depreciation pressure. However, in the long term, if easing policies are coupled with strong fiscal stimulus to stabilize the economy, the RMB’s medium- and long-term outlook will be significantly boosted.

Current Investment Opportunity Assessment

Given the current situation, investing in RMB-related currency pairs offers certain profit opportunities, but timing is crucial. It is expected that the RMB will maintain a relatively strong stance in the short term, with limited fluctuations and a reverse correlation with the US dollar. The probability of rapid appreciation below 7.0 before the end of 2025 is low.

The key is to closely monitor three major uncertainties: the weakening pace of the US dollar index, signals from the RMB midpoint rate adjustments, and the implementation and momentum of China’s stabilizing growth policies.

Practical Framework for Judging RMB Exchange Rate Trends

From Central Bank Policies to Trends
The People’s Bank of China’s monetary policy stance directly influences money supply and exchange rates. Rate cuts and reserve requirement ratio reductions generally lead to depreciation expectations, while rate hikes tend to support appreciation. Historical changes in benchmark lending rates and reserve ratios can serve as references.

From Economic Data to Support
Quarterly GDP data reflect macroeconomic health; PMI monthly data (official and Caixin) gauge business activity—focusing on large enterprises and SMEs respectively; CPI indicates inflation levels, influencing policy orientation; urban fixed asset investment reflects construction activity. These data collectively shape foreign capital inflow expectations.

From US Dollar Trends to Direction
The Federal Reserve and European Central Bank’s monetary policies often determine the US dollar index direction. Historically, accelerated Eurozone economic recovery combined with ECB tightening signals has driven the dollar index down by 15% over a year, leading to a similar decline in USD/RMB.

From Official Guidance to Positioning
Since the 2017 reform, the RMB/USD midpoint quotation model has incorporated a “counter-cyclical factor,” strengthening official guidance. While short-term impacts are evident, the medium- and long-term trend remains dictated by the broader currency market direction. Monitoring the continuous changes in the midpoint rate can often provide early signals of trend shifts.

Ways for Investors in Different Regions to Participate

Through Financial Institutions

• Commercial and international banks: open foreign exchange accounts for trading and investment
• Securities firms: some offer forex trading services
• Futures exchanges: conduct forex futures trading

Through the Foreign Exchange Market
Official forex markets allow investors to hold both long and short positions, profiting from both rising and falling prices. Many platforms support leveraged trading, amplifying gains but also increasing risks. Investors should allocate funds reasonably according to their risk tolerance and utilize risk management tools like stop-loss and take-profit orders.

Overall Outlook

The RMB is at a critical cycle turning point. The depreciation cycle that began in 2022 may have ended. Strong export resilience, reallocation of foreign capital into RMB assets, and a structurally weak US dollar are collectively driving the RMB into a new medium- to long-term appreciation phase.

Although variables like trade negotiations and Fed policies still exist in the short to medium term, similar historical cycles often last a decade. By focusing on macro policies, economic data, US dollar trends, and official guidance, investors can significantly improve their chances of profit. Compared to stocks and futures, the forex market’s large trading volume, two-way trading, and transparent data environment make it more fair and advantageous for ordinary investors.