The RMB's exchange rate against the US dollar continues to strengthen, hitting 6.98, the best performance in nearly two years!

In the last trading week of December, the RMB to USD exchange rate hit a new high. The offshore market USD to RMB fell to 6.9965, breaking below the 7.00 mark for the first time since September last year. The onshore market also declined to 7.0051. In other words, the RMB has appreciated against the USD, and quite significantly.

Who is driving this appreciation behind the scenes? Market analysis generally points to three forces:

The USD Itself is in Decline

Since the beginning of the year, the US dollar index has fallen over 10%, and in the past month, it has dropped more than 2%. Against the backdrop of the Federal Reserve’s rate cut cycle and the global de-dollarization trend, a weak dollar is the general direction. When the dollar weakens, the RMB naturally strengthens relative to it—this is a simple pendulum effect.

The Central Bank is Guiding the Appreciation in an Orderly Manner

This year, China’s central bank has continuously adjusted the RMB midpoint rate (market reference rate) upward, signaling a clear message: allowing the RMB to appreciate gradually. The central bank has not followed suit by cutting interest rates further and has also indicated a policy focus shift toward stabilizing the exchange rate rather than stimulating growth.

Year-End Settlement Surge Coupled with Liquidity Conditions

China’s trade surplus in 2025 is enormous. As the year-end approaches, companies are consolidating foreign exchange settlements and converting to RMB, increasing RMB supply and reducing USD demand. Meanwhile, due to the upcoming holiday season, offshore market liquidity is tighter, which also tends to push up the RMB price.

Will the Appreciation Continue in 2026?

Market opinions on the RMB outlook are divided but generally optimistic.

ANZ Bank forecasts that in the first half of 2026, the USD to RMB exchange rate will fluctuate between 6.95 and 7.00, maintaining the current level. However, several major international banks are more bullish on the RMB:

• Goldman Sachs is the most aggressive, expecting the USD to RMB to fall to 6.90 by mid-2026 and further to 6.85 by the end of the year.
• Bank of America also has a positive outlook, believing that as US-China relations improve and boost exporters’ confidence, the USD to RMB could fall to 6.80 by the end of 2026.

These institutions generally believe that, based on trade-weighted exchange rates and economic fundamentals, the RMB is actually undervalued. Goldman Sachs’ estimates have underestimated the RMB’s strength by about 25%.

What Does the Appreciation Mean for Investors?

RMB appreciation is a double-edged sword. In the short term, it enhances the attractiveness of Chinese assets to foreign investors—costs for foreign capital to exchange USD for RMB are lower, and the valuation of A-shares and Hong Kong stocks is relatively improved. In the long term, appreciation may put pressure on exporters but benefits importers and consumers.

Considering the central bank’s policy orientation and market consensus, the probability of the RMB continuing to appreciate in 2026 is quite high, but the pace of appreciation may gradually narrow. Ultimately, it depends on the economic trajectories and policy battles between China and the US.