Central Bank Policy Signals Behind the RMB Appreciation: Strategic Intent of USD/CNH Approaching 7.00

The People’s Bank of China’s recent pricing operations have sent a rare and clear signal. The central bank has continuously set the USD/CNY midpoint above the model-estimated value, which is completely opposite to the practice of the past three years. Once upon a time, the central bank tended to keep prices low to stabilize the market; now, this shift indicates that Beijing authorities are intentionally guiding the renminbi onto a gradual appreciation track. OCBC Bank’s assessment points out that this is a “deliberate action,” implying strategic considerations of economic rebalancing.

Exporters’ Currency Conversion Wave Boosts the Renminbi, $1 Trillion Trade Surplus as a Foundation for Appreciation

The data support comes from China’s record-breaking trade surplus in the first 11 months—reaching $1 trillion. Over the past two years, the US-China interest rate differential inversion forced export companies to accumulate large dollar positions. Now, with the Fed’s rate cut expectations becoming clearer and the US dollar index falling below the 102 mark, the market is showing a clear “week-to-week currency conversion” phenomenon.

ING Forex analyst Chris Turner straightforwardly states, “The renewed interest in the renminbi stems from the strong fundamentals shown by trade data, as exporters are seeking more favorable exchange rates.” A senior forex trader in Shanghai describes the market’s actual psychology: “When the exchange rate continuously breaks through 7.10 and 7.05, companies start worrying about the costs of delaying currency conversion—if they don’t convert RMB in time, they will pay a higher price at year-end bonus settlements.” This self-fulfilling appreciation expectation has short-term support for the resilience of the renminbi but also amplifies risks of economic structural imbalances, especially amid industrial output and retail sales both falling short of expectations.

The Reform Logic Behind the Appreciation Tool: From Export-Driven to Domestic Demand-Oriented

The appreciation of the renminbi is not merely a simple exchange rate fluctuation but an important tool in China’s “engine switch” strategy. BBH (Brown Brothers Harriman) analysis hits the mark: a strong currency can significantly enhance household purchasing power by lowering import costs, thereby supporting a consumption-driven growth model.

In the current environment, this move carries multiple strategic implications. During the real estate market adjustment period, a currency appreciation can provide a buffer for domestic demand; under the shadow of global inflation, it becomes a tool to hedge imported costs; simultaneously, an appreciating exchange rate pressures export industries to upgrade, achieving industrial structure optimization. However, risks also emerge. Caution from Standard Chartered and Goldman Sachs should not be underestimated: a USD/CNH break above the psychological threshold of 7.00 directly threatens export profits. Rapid appreciation could backfire on export competitiveness, leading to further economic cooling.

The Central Bank’s Balancing Measures: Interaction Between Reserve Requirement Ratios and Appreciation Pace

If the pace of appreciation gets out of control, the People’s Bank of China is not powerless. According to analyses from multiple institutions, the PBOC can adjust by raising foreign exchange deposit reserve ratios (RRR) or strengthening macroprudential management to regulate the market. The reserve requirement ratio, a traditional monetary policy tool, has now become an important means for the central bank to fine-tune the appreciation pace. By increasing reserve requirements, the PBOC can ease market expectations of further appreciation without overt intervention in the exchange rate, thus protecting export competitiveness.

Two Major Variables and Risk Tests in 2026

How far and how fast the renminbi can appreciate depends heavily on external conditions. In the short term, markets will closely watch whether the central bank slows the pace of midpoint rate hikes; in the medium to long term, the Fed’s rate cut trajectory is crucial. ING forecasts that if the Fed cuts rates twice more in 2026, the dollar’s weakness could persist, and USD/CNH might fall below 7.00.

However, risks should not be overlooked. Institutions like Goldman Sachs warn that if US-China trade tariffs escalate, USD/CNY could rise to 7.40–7.50, and global commodity price fluctuations could pressure commodity-related currencies. Capital Economics emphasizes that China is unlikely to deliberately devalue significantly to prevent financial instability, but it must find a balance between export competitiveness and internal stability.

A New Pricing Logic in Expectation Trading

The current market essentially reflects expectation trading. International capital is pre-positioning for a scenario where, over the next two years, the US-China interest rate differential converges, the dollar cycle weakens, and policy communication remains stable, allowing the renminbi to gradually close its appreciation gap. This is not a one-way bet but a “low-risk rebalancing” under controlled risk conditions.

For global investors, whether USD/CNH can break through 7.00 is not just an exchange rate issue but the ultimate test of China’s export competitiveness. If rapid appreciation damages profits, the PBOC may adjust policy pace at any time. This means future asset pricing models for China need updating: beyond growth rates and interest rates, the strategic value of the currency and reform commitments are becoming new variables that cannot be ignored.