The RMB Breaks 7: What Is the Central Bank Playing at? Will It Rise Again in 2026?

December 25th, a seemingly ordinary number triggered widespread market attention—USD/CNH (offshore RMB) fell to 6.9965, and USD/CNY (onshore RMB) dropped to 7.0051. This is the first time since September 2024 that the RMB has broken through this psychological barrier, and it is also the lowest level since May 2023.

**Why Did the RMB Suddenly Strengthen?**

Behind the seemingly simple exchange rate figures are actually the result of three forces acting simultaneously.

First is the weakening of the US dollar itself. Under the impact of the Federal Reserve's continuous signals of rate cuts and the global de-dollarization wave, the dollar index has fallen more than 10% this year, with a decline of over 2% in the past month alone. In the context of a weak dollar, the RMB naturally gained ground.

Second is the change in attitude of the People's Bank of China. Looking at the full-year data, the central bank has continuously raised the midpoint of the RMB exchange rate. This "reference rate" change sends a clear signal: allowing the RMB to appreciate gradually. This is not a spontaneous market fluctuation but a deliberate guidance.

Third is the year-end timing effect. In 2025, China accumulated a huge trade surplus. As the year-end approached, companies concentrated on foreign exchange settlement, and demand for foreign exchange surged, naturally pushing up the RMB. Additionally, the approaching holiday season led to tighter liquidity in the offshore market, amplifying this effect.

Wang Qing, Chief Macro Analyst at Orient Securities, pointed out—"The weakening dollar and seasonal foreign exchange conversions by exporters have driven the RMB's strength." He further noted that continued RMB appreciation will enhance China's capital market attractiveness to foreign investors.

**Valuation Dispute: Is the RMB Cheap or Expensive?**

Interesting disagreements have emerged here. Some institutions believe that based on trade-weighted indices and economic fundamentals, the RMB is still seriously undervalued. Goldman Sachs' data best illustrates this—according to their estimates, the RMB is undervalued by 25% relative to economic fundamentals, implying room for further appreciation.

Based on this judgment, major investment banks have provided different but RMB-favoring forecasts for USD/CNY in 2026:

ANZ Bank predicts that in the first half of 2026, USD/CNY may fluctuate between 6.95 and 7.00.

Goldman Sachs' forecast is more aggressive, expecting USD/CNY to fall to 6.90 by mid-2026 and further to 6.85 by the end of the year.

Bank of America’s logic starts from exports—improved China-US relations will enhance the outlook for Chinese exporters, and the scale of dollar selling by exporters will increase. They estimate that USD/CNY will fall to 6.80 by the end of 2026.

**Underlying Policy Logic**

It’s worth pondering why the central bank is allowing the RMB to appreciate at this point. Besides the objective factor of a weakening dollar, there is an important consideration—RMB appreciation can boost the attractiveness of China's capital markets to foreign investors, aligning with the current broader strategy of expanding opening-up and attracting foreign capital.

At the same time, the central bank’s reluctance to further cut interest rates also signals concern about exchange rate stability. This policy combination indicates that the central bank is balancing multiple goals: maintaining growth, keeping the exchange rate relatively stable, and enhancing monetary policy independence.

Overall, the RMB breaking through 7 is not a one-time event but the beginning of a process. Future exchange rate movements will depend on the interaction of multiple factors such as Federal Reserve policies, China-US economic performance, and trade dynamics. But based on current market consensus, the probability of the RMB continuing to appreciate in 2026 is indeed higher.