RMB appreciation cycle begins? In-depth forecast of USD to RMB exchange rate trend in 2026

Renminbi Exchange Rate Trends Signal Turning Point

In 2025, the Renminbi (RMB) shows a clear reversal trend. After experiencing three consecutive years of depreciation pressure from 2022 to 2024, the RMB against the US dollar has rebounded significantly. The USD/RMB exchange rate fluctuated within a range of 7.1 to 7.3 throughout the year, appreciating a total of 2.40%; the offshore market experienced even greater volatility, fluctuating between 7.1 and 7.4, with an annual appreciation of 2.80%.

Most notably, in the second half of the year, the RMB experienced a strong rebound. Driven by factors such as easing US-China trade tensions and increased expectations of Federal Reserve rate cuts, the RMB appreciated against the dollar to below 7.08, reaching a low of 7.0765, the highest in nearly a year. What does this turning point mean? Several international investment institutions believe that the depreciation cycle that began in 2022 may have ended, and the RMB has the opportunity to enter a new phase of medium- to long-term appreciation.

Five-Year Review: Cyclical Changes in the RMB Exchange Rate

To understand the current trend, it is necessary to review the past five years:

2020 Pandemic Shock Period: At the start of the year, USD/RMB fluctuated between 6.9 and 7.0. In May, due to trade tensions, it briefly depreciated to 7.18. However, as China’s pandemic control measures proved effective and the economy recovered ahead of others, coupled with the Federal Reserve signaling rate cuts and China maintaining prudent policies, the interest rate differential widened, providing support. By the end of the year, the RMB rebounded strongly to 6.50, appreciating about 6% for the year.

2021 Export-Driven Period: China’s exports remained strong, and the central bank’s policies were stable. The US dollar index hovered at low levels, and the exchange rate traded within 6.35 to 6.58, with an average around 6.45 for the year, maintaining relative strength.

2022 Rapid Depreciation Period: This was a turning point. Aggressive rate hikes by the Federal Reserve pushed the dollar index soaring, while China’s strict pandemic policies hampered economic growth and the real estate crisis worsened, leading to a collapse in market confidence. USD/RMB rose from 6.35 to above 7.25, with a depreciation of about 8% for the year, the largest decline in recent years.

2023 Sustained Pressure Period: USD/RMB fluctuated between 6.83 and 7.35, with an average around 7.0. China’s post-pandemic economic recovery fell short of expectations, the real estate debt crisis persisted, and consumption remained sluggish, while US high interest rates persisted. The RMB continued under pressure, ending the year slightly higher at 7.1.

2024 Increased Volatility Period: The US dollar weakened, easing pressure. China’s fiscal stimulus and support measures for real estate boosted confidence. USD/RMB rose from 7.1 to around 7.3 by mid-year, with offshore RMB breaking below 7.10 in August, reaching a six-month high.

Institutional Forecast: RMB Appreciation Expectations for 2026

Regarding the exchange rate trend in 2026, major international investment banks have issued optimistic signals:

Deutsche Bank believes that the recent strength of the RMB indicates the start of a long-term appreciation cycle. The bank estimates that USD/RMB will rise to 7.0 by the end of 2025 and further appreciate to 6.7 by the end of 2026. This implies an appreciation of over 4%.

Morgan Stanley also expects moderate RMB appreciation, judging that the US dollar will continue to weaken over the next one to two years. The firm forecasts that by the end of 2026, the US dollar index could fall to 89, with the USD/RMB exchange rate possibly reaching around 7.05.

Goldman Sachs has a more aggressive view. In a mid-year report, the bank sharply raised its USD/RMB forecast for the next 12 months from 7.35 to 7.0, suggesting the “breaking 7” point for RMB may arrive sooner than expected. Goldman’s logic is that the current real effective exchange rate of RMB is undervalued by 12% relative to the ten-year average, and by 15% against the dollar. Based on progress in US-China trade negotiations and the current undervaluation, it expects the RMB to reach 7.0 within 12 months. Goldman also notes that strong Chinese exports and the government’s preference for fiscal rather than monetary depreciation policies will support the RMB.

Three Major Factors Supporting RMB Appreciation

Looking ahead to 2026, three key factors are expected to support RMB appreciation:

1. Continued resilience of Chinese exports. Despite external trade and environmental challenges, China’s position in the global supply chain remains solid, maintaining long-term demand for the RMB.

2. Reallocation of foreign capital into RMB assets. As RMB valuation improves and appreciation expectations solidify, international investors’ interest in RMB assets is likely to rebound, leading to a net inflow of cross-border capital.

3. Structural weakness of the US dollar index. The Federal Reserve’s rate cut cycle means the dollar lacks rate support, while policy divergence among Europe, Japan, and other economies also limits the dollar’s upside.

Risks and Variables: Key Indicators to Watch

However, the outlook for appreciation is not guaranteed and depends on several variables:

US Dollar Index Trends: In the first five months of 2025, the dollar index fell by 9%, marking the worst start to a year in history. If the Fed accelerates rate cuts or geopolitical risks ease, the dollar could depreciate further, benefiting the RMB. Conversely, stronger-than-expected economic data or inflation rebound could stabilize the dollar.

US-China Relations: Although interactions have eased after the London talks, the durability of trade relations remains uncertain. The agreement reached in Geneva in May quickly unraveled, reminding investors that tariffs remain a significant variable. If negotiations ease, the RMB could be supported; if tensions escalate, depreciation pressure persists.

Federal Reserve Policy Pace: The Fed signaled rate cuts in the second half of 2024, but the magnitude and pace in 2025 may be influenced by inflation, employment, and government policies. If inflation exceeds targets, the Fed may slow or halt rate cuts, supporting the dollar; otherwise, the RMB could benefit.

PBOC Policy Orientation: The People’s Bank of China tends to maintain easing to support economic recovery, especially amid a weak real estate sector. Rate cuts or reserve requirement ratio reductions will release liquidity, exerting short-term downward pressure on the RMB. However, if easing is combined with strong fiscal stimulus to stabilize the economy, the RMB could be supported in the long term.

RMB Central Parity Rate Adjustments: Unlike freely convertible currencies, the RMB has undergone multiple exchange rate management reforms since opening up. The 2017 reform introduced a “counter-cyclical factor,” strengthening official guidance. This mechanism has a significant short-term impact on the exchange rate, but the medium- to long-term trend still depends on market direction.

Current Investment Timing for RMB

For investors, there are profit opportunities in investing in RMB-related currency pairs at this stage, but timing is crucial.

In the short term, the RMB is expected to remain relatively strong, with fluctuations inversely correlated with the dollar, within a limited range. The rapid appreciation into below 7.0 before the end of 2025 is less likely. The main appreciation trend is more likely to unfold in 2026.

Investors should focus on the three key variables: US dollar index trends, signals from RMB central parity rate adjustments, and the strength and pace of China’s growth stabilization policies. Properly monitoring these factors can significantly improve profit prospects.

It is worth noting that the foreign exchange market is primarily driven by macro factors, and economic data released by various countries are transparent and publicly available. Coupled with the large trading volume supporting two-way trading, it is relatively fair for individual investors. However, leverage tools can amplify both gains and risks, so investors should develop appropriate risk management strategies based on their own circumstances.

Conclusion

As China enters a sustained easing cycle of monetary policy, the USD/RMB trend shows clear signs of a turning point. Based on historical similar cycles, the impact of policy can last up to ten years. During this major cycle, although short-term fluctuations may occur due to dollar movements and other unexpected events, the overall direction has changed. Investors who grasp the key factors influencing the RMB exchange rate can benefit from this appreciation cycle.