Renminbi exchange rate rebounds in the second half of 2025: Major turning point in USD to RMB trend, investment opportunities emerge

The Renminbi Turns from Depreciation to Appreciation: The USD to RMB Exchange Rate Reaches a Critical Turning Point

By the end of 2025, the Renminbi experienced an unexpectedly strong rebound. The USD to RMB exchange rate sharply broke below 7.05 in mid-December, reaching its highest appreciation point in nearly 14 months, and subsequently touched the 7.0404 level. This shift marks the waning of the long-term depreciation cycle that began in 2022, with a new round of appreciation gradually taking shape.

Looking back at this year’s exchange rate fluctuations, the RMB against the US dollar did not decline as pessimistic market expectations suggested. Instead, it appreciated by approximately 3% over the year, oscillating within the 7.04 to 7.3 range. The offshore market was even more sensitive, with USD to offshore RMB fluctuating between 7.02 and 7.4, reflecting differing international market expectations for the RMB.

This reversal did not happen out of nowhere. Since the second half of the year, with the improvement of China-US trade relations, the US dollar index shifting from strength to weakness, and the global major non-US currencies generally appreciating, the RMB gradually stabilized and began a gentle rebound. What does this market sentiment shift imply? Does it signal the emergence of an investment opportunity?

Three Major Forces Driving the USD to RMB Exchange Rate

The fluctuations of the USD to RMB exchange rate are not determined by a single factor but are the result of multiple forces at play. Understanding these drivers is crucial for predicting future trends.

Weakness of the US Dollar Index

In the first half of 2025, the US dollar index experienced a rare decline, falling from 109 at the start of the year to 98, a nearly 10% drop, marking the worst first half performance since the 1970s. In the second half, although the dollar index rebounded above 100 due to easing expectations of Fed rate cuts, it softened again in December to the 97.8-98.5 range, with a low of 97.869 as the Fed began actual rate cuts.

A moderate strengthening of the dollar usually exerts downward pressure on the RMB, but the positive effects of the China-US agreement temporarily offset this negative impact. Historically, the USD index and USD to RMB exchange rate are highly correlated; a weak dollar itself provides natural support for the RMB.

The delicate balance of China-US economic and trade relations

Although both sides reached a trade truce in the latest Kuala Lumpur negotiations—US tariffs on fentanyl-related goods reduced from 20% to 10%, and additional tariffs were suspended until November 2026— the durability of this reconciliation remains to be seen. Past experience shows that similar agreements are prone to reversal; for example, the deal reached in Geneva in May was quickly broken.

However, it is undeniable that the future direction of China-US trade relations is becoming the most important external variable in judging the USD to RMB exchange rate. If the agreement holds, the RMB exchange rate environment will tend to stabilize; if friction escalates, the RMB will face renewed downward pressure.

The turning point effect of Fed policy

The Federal Reserve’s monetary policy directly influences the attractiveness of the dollar. In the second half of 2024, the Fed began signaling rate cuts, but the pace of rate reductions in 2025 will be constrained by inflation, employment, and government policies. If inflation remains stubbornly high, the Fed may slow down rate cuts, supporting the dollar; conversely, economic slowdown could accelerate rate cuts and weaken the dollar.

Interestingly, the RMB and the US dollar index often show an inverse relationship. Every policy adjustment by the Fed leaves an imprint on the RMB.

The People’s Bank of China’s accommodative stance

To support economic recovery, the PBOC tends to maintain an easing policy, especially amid sluggish real estate markets and insufficient domestic demand. Through rate cuts or reserve requirement ratio reductions to inject liquidity, these measures may exert short-term downward pressure on the RMB, but if they effectively stabilize economic growth, they will eventually boost the RMB in the long run.

Historical Patterns: The RMB Exchange Rate Trajectory in the Past Five Years

To understand the current situation, it is essential to review the past. The exchange rate trends over the last five years reveal the underlying logic of RMB appreciation and depreciation.

2020 Pandemic Arbitrage: Early in the year, the exchange rate oscillated between 6.9 and 7.0, with the RMB temporarily depreciating to 7.18 during the initial outbreak. As China controlled the pandemic first and achieved economic recovery, coupled with the Fed’s near-zero interest rates and widening interest rate differentials, the RMB rebounded strongly to around 6.50 by year-end, appreciating 6% for the year.

2021 Export Boom: China’s exports remained robust, and the central bank maintained a prudent policy stance. The USD to RMB exchange rate fluctuated narrowly between 6.35 and 6.58, with the RMB remaining strong throughout the year, averaging only 6.45.

2022 USD Storm: This year saw the exchange rate surge from 6.35 to over 7.25, a depreciation of 8%, the largest in recent years. The aggressive rate hikes by the Fed pushed the dollar index higher, while strict pandemic controls and a real estate crisis in China exerted heavy pressure on the RMB.

2023 Low-Range Fluctuation: Due to sluggish economic recovery, real estate debt issues, and a high dollar index, the USD to RMB average hovered around 7.0, always above 7, with market confidence low.

2024 Increased Volatility: The weakening dollar provided relief, and Chinese policies boosted confidence. Mid-year, the exchange rate rose to 7.3, and offshore RMB briefly broke below 7.10 in August, reaching a six-month high, with increased volatility.

These five years clearly demonstrate that policy, economic fundamentals, and dollar trends jointly determine the long-term direction of the RMB.

Market Consensus: RMB Appreciation Cycle Has Begun

Recent forecasts from international investment banks show a rare consensus of optimism.

Deutsche Bank analysts suggest that the recent strengthening of the RMB against the dollar may mark the start of a long-term appreciation cycle. The bank forecasts the RMB will reach 7.0 by the end of 2025 and further appreciate to 6.7 by the end of 2026.

Goldman Sachs’s forecast is equally notable. In a May report, the global FX strategy team significantly raised their 12-month USD to RMB target to 7.0, asserting that the “break 7” point could arrive sooner than market expectations. Their logic is based on a key finding: the current real effective exchange rate of the RMB is undervalued by 12% relative to the ten-year average, with an even larger undervaluation of 15% against the dollar.

This undervaluation provides room for appreciation. Coupled with China’s continued strong export performance, a tendency for the government to favor fiscal rather than monetary depreciation policies to stimulate the economy, Goldman Sachs believes the RMB has solid fundamental support for appreciation.

Is Now the Time to Invest in the RMB? An Investment Perspective

For investors looking to participate in USD to RMB exchange rate fluctuations, timing is crucial.

In the short term, the RMB is expected to remain relatively strong, with a limited oscillation in the opposite direction of the dollar. The likelihood of rapid appreciation and breaking below 7.0 before the end of 2025 is low, which may disappoint aggressive investors.

However, in the medium to long term, the overall trend of RMB appreciation has been established. Investors should focus on three key variables: the direction of the US dollar index, signals from the RMB central parity rate, and the strength of China’s stabilizing growth policies. These factors will determine the speed and extent of RMB appreciation.

Four Tools to Judge the RMB Exchange Rate

Rather than passively waiting, it’s better to actively learn how to analyze. The following four dimensions can help investors independently assess RMB trends.

The monetary policy stance of the PBOC: The central bank’s policy orientation directly impacts money supply. Rate cuts or reserve requirement ratio reductions increase liquidity and weaken the RMB; rate hikes or reserve ratio increases tighten liquidity and strengthen the RMB. Monitoring official statements and actual operations can often reveal early signals of turning points.

The quality of China’s economic data: Indicators like GDP, PMI, CPI, and urban fixed asset investment reflect real economic conditions. When data improves and outperforms other emerging markets, foreign capital inflows increase, boosting demand for the RMB; the opposite exerts downward pressure. These data are publicly released monthly or quarterly, with full transparency.

USD index and Fed movements: The dollar’s trend directly influences USD to RMB fluctuations. Every Fed meeting and dot plot adjustment impacts dollar expectations. The case of the European Central Bank signaling tightening in early 2017, leading to a 15% decline in the dollar index throughout the year, shows that dollar movements often lead RMB by two or three months.

Official exchange rate guidance: Unlike fully floating currencies, the RMB is influenced by the PBOC’s central parity quotes and foreign exchange interventions. Since the introduction of the counter-cyclical factor in 2017, official guidance on short-term exchange rates has strengthened. Observing the rhythm of central parity adjustments and official statements can help capture policy intentions.

The Unique Perspective of Offshore RMB(CNH)

When analyzing USD to RMB trends, the offshore market signals should not be overlooked.

Offshore RMB(CNH) trades in international markets like Hong Kong and Singapore. Compared to the onshore RMB(CNY), which is subject to capital controls, CNH enjoys greater freedom of capital flow, making CNH more volatile and more responsive to global market sentiment.

In 2025, despite multiple fluctuations, CNH generally trended upward. Early in the year, impacted by US tariffs and a spike in the dollar index to 109.85, CNH briefly broke below 7.36. The People’s Bank of China took stabilizing measures, including issuing 60 billion yuan of offshore bonds to recover liquidity and strict management of the central parity.

Recently, with easing China-US dialogue, effective policies supporting economic growth, and rising expectations of Fed rate cuts, CNH has strengthened significantly. On December 15, CNH broke through 7.05 against the dollar, rebounding over 4% from the early-year high, reaching a 13-month high. This shift is more sensitive than onshore markets, indicating a reassessment of international capital’s outlook on the RMB.

Summary: Grasp Long-Term Trends, Manage Short-Term Risks

As China enters a sustained easing cycle in monetary policy, the USD to RMB exchange rate is clearly trending. Based on historical experience, such cycles can last for a decade, with short-term fluctuations due to dollar volatility and unexpected events, but the overall direction remains set.

By focusing on the key drivers—policy stance, economic data, dollar trend, and official guidance—investors can significantly improve their profit prospects. The forex market is primarily macro-driven, with transparent data, two-way trading, and ample liquidity, providing a relatively fair environment for retail investors. The key is to establish a systematic analytical framework rather than follow hype or speculation.