Will the RMB exchange rate experience a turning point? An in-depth analysis of future trends and investment opportunities

From Depreciation Cycle to Appreciation Trajectory: The Critical Turning Point of the Renminbi Exchange Rate

Since 2025, the trend of the Renminbi exchange rate has undergone significant changes, ending the continuous depreciation over the past three years. The USD to RMB exchange rate has fluctuated within the 7.04 to 7.30 range, demonstrating clear resilience, with an overall appreciation of about 3% year-to-date. In mid-December, the RMB against the USD strengthened sharply, breaking through 7.05 and reaching a new high in nearly 14 months, touching 7.0404.

Looking at the offshore market, the USD to offshore RMB has fluctuated between 7.02 and 7.40, slightly higher than the onshore market, reflecting a more sensitive response of international markets to RMB volatility. In the first half of the year, external pressures—such as global tariff policy uncertainties and a strengthening US dollar index—caused offshore RMB to break below 7.40, setting a record since the 2015 currency reform. However, in the second half, as US-China trade negotiations made progress and the US dollar index weakened, the RMB exchange rate gradually stabilized and began to recover.

Core Factors Driving the RMB Exchange Rate Trends

The future evolution of the RMB exchange rate will be influenced by multiple factors, requiring analysis from both external environment and internal policy perspectives.

Changes in the US Dollar Index

The movement of the US dollar index directly impacts the RMB. In the first half of 2025, the dollar index declined from 109 at the start of the year to about 98, a nearly 10% drop, marking the weakest first half since the 1970s. In November, due to expectations of a reduced rate cut by the Federal Reserve and better-than-expected US economic performance, the dollar index rebounded and repeatedly crossed the 100 mark. Although a short-term strengthening of the dollar usually exerts downward pressure on the RMB, positive signals from a US-China agreement temporarily offset this impact. After the Fed’s rate cut in December, the dollar index softened again, bottoming at 97.869, returning to the 97.8-98.5 range.

Trends in US-China Economic and Trade Relations

In the latest negotiations in Kuala Lumpur, both sides reached a trade truce— the US will reduce tariffs related to fentanyl on China from 20% to 10%, and suspend other related additional measures until November 2026. The sustainability of this agreement remains uncertain, as a similar deal reached in Geneva in May this year quickly fell apart. The stability of US-China trade relations has become the most critical external variable in judging the RMB exchange rate trend. If the current situation persists, the RMB environment will stabilize; if tensions escalate, markets will face new pressures.

Federal Reserve and People’s Bank Policy Orientations

The US Federal Reserve’s interest rate decisions directly influence the attractiveness of the dollar. The magnitude and pace of rate cuts in 2025 may be affected by inflation, employment, and policies under Trump. The RMB and the US dollar index usually move inversely— when the dollar weakens, the RMB benefits. Meanwhile, the People’s Bank of China tends to maintain an accommodative policy to support economic recovery. Short-term loose monetary policy exerts downward pressure on the RMB, but if combined with strong fiscal stimulus to stabilize the economy, it will eventually boost the RMB in the long run.

RMB Internationalization Trend

The expansion of RMB usage in global trade settlements and increased currency swap agreements with other countries provide long-term support for RMB stability. However, in the short term, the US dollar’s status as the world’s primary reserve currency remains difficult to challenge.

Predictions from International Investment Banks on the RMB Trend

The market generally believes that the RMB is at a cycle turning point. The depreciation cycle that began in 2022 has ended, and the RMB is expected to enter a new phase of medium- to long-term appreciation.

Deutsche Bank analysts suggest that recent RMB strength may signal the start of a long-term appreciation cycle. They expect the USD to RMB exchange rate to rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026.

Goldman Sachs’ global FX strategy head previously raised their forecast for the USD to RMB exchange rate over the next 12 months from 7.35 to 7.0. Goldman Sachs believes that the current real effective exchange rate of the RMB is undervalued by 12% relative to the ten-year average, and by 15% against the dollar. Based on progress in US-China negotiations and the RMB’s undervaluation, further appreciation is anticipated. Meanwhile, China’s strong export performance will support the RMB, and the Chinese government is more likely to use other policy tools to stimulate the economy rather than pursue currency devaluation strategies.

Timing Strategies for RMB Investment

Given the current situation, there are profit opportunities in investing in RMB-related currency pairs, but timing is crucial.

In the short term, the RMB is expected to remain relatively strong, moving inversely to the dollar within a limited range. The probability of a rapid appreciation below 7.0 before the end of 2025 is low. Key variables to monitor include: US dollar index trends, signals from the RMB midpoint rate adjustments, and the strength of China’s stabilizing growth policies.

Investment Framework for Judging RMB Exchange Rate Trends

To accurately grasp RMB exchange rate evolution, an analytical framework can be established from the following four aspects:

Step 1: Focus on Central Bank Monetary Policy

The People’s Bank of China’s monetary policy directly affects money supply and exchange rates. Looser policies (rate cuts, reserve requirement reductions) increase money supply, leading to RMB depreciation; tighter policies support RMB appreciation. For example, in 2014, when the central bank repeatedly cut rates and significantly lowered reserve requirements, USD to RMB rose from 6.3 to over 7.4, illustrating the profound impact of monetary policy on the exchange rate.

Step 2: Analyze China’s Economic Data

China’s economic performance determines foreign capital flows. When the economy is stable or outperforming other emerging markets, sustained foreign inflows boost RMB demand, strengthening the currency. Conversely, slowing growth, reduced foreign investment, or capital outflows exert downward pressure on the RMB.

Key economic data to watch include:

• GDP: released quarterly, reflects macroeconomic conditions
• Purchasing Managers’ Index (PMI): released monthly, official version reflects large and medium enterprises, Caixin version reflects small and medium enterprises
• Consumer Price Index (CPI): measures inflation, indirectly indicating economic heat
• Urban Fixed Asset Investment: released monthly by the National Bureau of Statistics, reflects activity in construction and asset acquisition

Step 3: Track US Dollar Trends and Global Policies

The US dollar’s movement directly determines USD to RMB fluctuations. The Federal Reserve and the European Central Bank’s monetary policies are often key drivers. For example, in 2017, the Eurozone’s stronger-than-US recovery and the ECB’s tightening signals pushed the euro higher, causing the dollar index to fall 15% that year. Simultaneously, USD to RMB also declined, demonstrating their high correlation. This logic applies similarly to EUR/RMB forecasts— when the euro appreciates, RMB against the euro tends to be supported.

Step 4: Interpret Official Guidance Signals on the Exchange Rate

Unlike freely floating currencies, the RMB has undergone multiple exchange rate management reforms. In 2017, the RMB’s midpoint pricing model was adjusted to “closing price + a basket of currencies exchange rate change + counter-cyclical factor,” strengthening official guidance. While this mechanism has a clear short-term influence on the exchange rate, the medium- to long-term trend still depends on the overall direction of the currency market.

Review of RMB Exchange Rate Movements in the Past Five Years

2020: At the start of the year, USD to RMB fluctuated between 6.9 and 7.0. Amid US-China trade tensions and pandemic shocks, RMB depreciated to 7.18 in May. As China led the pandemic control and economic recovery, coupled with the Fed’s near-zero rate cuts, the widening interest rate differential supported RMB rebound, ending the year at around 6.50, a roughly 6% appreciation.

2021: China’s exports remained strong, and the economy improved. The US dollar index stayed low, with USD to RMB fluctuating narrowly between 6.35 and 6.58, maintaining relative strength throughout the year.

2022: USD to RMB rose from 6.35 to over 7.25, a depreciation of about 8%, the largest in recent years. The reasons include aggressive Fed rate hikes boosting the dollar index and China’s pandemic policies and real estate crisis dampening economic confidence.

2023: USD to RMB fluctuated between 6.83 and 7.35, ending slightly above 7.1. China’s economic recovery post-pandemic was weaker than expected, with ongoing real estate debt issues and sluggish consumption weighing on the RMB.

2024: The weakening dollar eased RMB pressure, with fiscal stimulus and real estate support boosting confidence. USD to RMB rose from 7.1 to around 7.3, with increased volatility throughout the year.

Special Performance of Offshore RMB (CNH)

Offshore RMB (CNH), traded in markets like Hong Kong and Singapore, enjoys freer capital flows and reflects global market sentiment. In contrast, onshore RMB (CNY) is subject to capital controls, with the People’s Bank of China guiding via daily midpoint rates and forex interventions. Therefore, CNH tends to exhibit larger fluctuations.

In 2025, despite multiple fluctuations, offshore RMB showed an overall oscillating upward trend. Early in the year, US tariffs and a spike in the dollar index to 109.85 caused CNH to weaken past 7.36. The PBOC responded with stabilization measures, including issuing 60 billion yuan of offshore bonds to recover liquidity and strict control of the midpoint rate. Recently, with easing US-China trade tensions, stabilizing growth policies, and expectations of Fed rate cuts, CNH has strengthened significantly. In mid-December, CNH broke below 7.05 against the dollar, rebounding over 4% from the year’s high, reaching a 13-month high.

Investment Summary

As China enters a sustained easing cycle in monetary policy, the USD-RMB exchange rate is showing a clearer trend. Based on historical experience, policy-driven cycles can last up to ten years, during which short- to medium-term movements are affected by dollar fluctuations and other events. Investors who grasp the core factors influencing RMB trends can greatly improve profit prospects. The forex market is primarily macro-driven, with transparent data disclosures from various countries, and the large volume and two-way trading features make it relatively fair and advantageous for individual investors.