The RMB to USD exchange rate breaks 7: the combined effect of the central bank's attitude shift and trade settlement

Since mid-December, the RMB against the US dollar has experienced a key breakthrough. The USD/CNH (offshore RMB) has fallen to 6.9965, and the USD/CNY (onshore RMB) has dropped to 7.0051, marking the strongest RMB performance since May 2023 and the first time since September last year that it has broken the psychological level of 7.

This round of appreciation is not accidental but the result of multiple factors resonating. The most direct driver is the broad weakening of the US dollar—since the beginning of the year, the US dollar index has fallen over 10%, with a recent one-month decline exceeding 2%, which is particularly evident amid the Federal Reserve’s rate cut cycle and the global de-dollarization wave.

Central Bank Signals, RMB Appreciation Trend Established

More noteworthy is the policy tilt of the People’s Bank of China. Throughout 2025, the central bank has continuously increased the midpoint rate (reference rate) of the RMB, signaling expectations of RMB appreciation through daily operations. This change in attitude marks a shift from previous stable exchange rate management to orderly appreciation, providing clear guidance to businesses and investors.

The year-end trade settlement effect is the direct catalyst for this wave of appreciation. As China’s trade surplus continues to hit new highs in 2025, a large number of export companies conduct concentrated settlement at year-end, creating strong demand for the RMB. Meanwhile, the central bank maintains relatively stable interest rate policies without following suit to further cut rates. Coupled with liquidity tightness during offshore market holidays, these factors jointly pushed up the RMB’s price.

Wang Qing, Chief Macro Analyst at Orient Securities, pointed out that this round of appreciation is essentially a “superposition of US dollar weakness and seasonal foreign exchange exchange effects.” He further believes that the RMB’s continued strength will significantly enhance China’s capital market attractiveness to overseas funds, forming a positive feedback loop.

Is the Exchange Rate Undervalued? What Are the Outlooks for 2026?

Although the RMB has broken through 7, market participants generally believe that the RMB is still undervalued based on purchasing power parity and trade-weighted indices. This also lays the foundation for further appreciation expectations in 2026.

Xing Zhaopeng, Senior Strategist at ANZ Bank, predicts that in the first half of 2026, USD/CNY will fluctuate between 6.95 and 7.00, reflecting a view that the RMB’s upward momentum may slow temporarily but will not reverse.

Goldman Sachs is more optimistic. The firm’s research suggests that the RMB is seriously undervalued relative to economic fundamentals, with a depreciation gap approaching 25%. Its target prices are: mid-2026 at 6.90, and further falling to 6.85 by the end of the year. Bank of America’s forecast is even more aggressive—they believe that as US-China relations ease and boost exporters’ enthusiasm, the scale of USD selling by domestic exporters will hit new highs in 2026, with an expected year-end USD/CNY of 6.80.

While different institutions have varying forecasts, the consensus is that the RMB appreciation trend will be difficult to reverse in 2026. This reflects ongoing international capital recognition of China’s economic fundamentals and policy orientation.