USD to RMB exchange rate in 2026: From depreciation cycle to appreciation turning point

The performance of the RMB against the US dollar in 2025 can be described as a “brightening after darkness.” After experiencing three consecutive years of depreciation from 2022 to 2024, the RMB exchange rate reversed its downward trend this year, demonstrating significant resilience. It fluctuated bidirectionally within the 7.1 to 7.3 range throughout the year, appreciating a total of 2.40%. Among them, offshore RMB experienced even greater volatility, oscillating between 7.1 and 7.4, with an annual appreciation of 2.80%, and showing noticeably higher sensitivity to international risk factors.

The most eye-catching moment for the market was on November 26—driven by improved China-U.S. trade relations and rising expectations of Federal Reserve rate cuts, the RMB appreciated against the dollar to below 7.08, even reaching 7.0765 at one point, hitting its highest level in nearly a year. What does this breakthrough signify? Let’s analyze it from historical context and future prospects.

Review of RMB Exchange Rate Cycles in the Past Five Years

To understand the present, we must first look at the past. The USD to RMB trend over the last five years clearly outlines several distinct cyclical phases.

2020 Pandemic Contrast: In early 2020, USD to RMB fluctuated between 6.9 and 7.0. Subsequently, due to trade risks between China and the US and the impact of the pandemic, the RMB depreciated to 7.18 in May. But a turning point emerged—China managed pandemic control effectively, leading the economic recovery, while the Federal Reserve aggressively cut rates to near zero, and China’s central bank maintained a prudent policy, creating a favorable interest rate differential. These factors collectively pushed the RMB higher, ending the year with a strong rebound to around 6.50, appreciating approximately 6% for the year.

2021’s Continued Strength: This year was a golden period for the RMB. Export growth remained robust, the economy improved, and the central bank’s policies remained stable, with the US dollar index lingering at low levels. USD to RMB fluctuated within a narrow range of 6.35 to 6.58, with an average of only 6.45 for the year, maintaining relative strength.

2022’s Rapid Depreciation: This year marked a turning point. USD to RMB soared from 6.35 to over 7.25, with an annual depreciation of 8%, the largest in recent years. The driving forces included aggressive Fed rate hikes causing the dollar index to surge, coupled with strict pandemic policies constraining economic growth, a worsening real estate crisis, and collapsing market confidence.

2023’s Stalemate and Pressure: USD to RMB fluctuated between 6.83 and 7.35, with an average around 7.0, ending slightly higher at 7.1. Multiple pressures existed: economic recovery fell short of expectations, unresolved real estate debt crises, sluggish consumption, and the persistent high-interest-rate environment in the US kept the dollar index firm between 100 and 104, exerting noticeable pressure on the RMB.

2024’s Slow Recovery: The weakening of the US dollar became a turning point. China’s fiscal stimulus and real estate support policies boosted confidence, with USD to RMB rising from the beginning of the year at 7.1 to around 7.3 mid-year. Offshore RMB broke through 7.10 in August, reaching a six-month high, with increased volatility throughout the year.

Outlook for the 2026 Exchange Rate: Is an Appreciation Cycle Beginning?

Market consensus is gradually forming: the depreciation cycle that started in 2022 may have bottomed out, and the RMB is brewing a new medium- to long-term appreciation trend.

Looking ahead to the end of 2025 and into 2026, three major factors are accumulating to support RMB strength:

First, China’s export growth continues to show resilience. Despite trade frictions, China’s competitive advantage in the supply chain remains intact, and export data remains robust.

Second, signs of foreign capital reallocating into RMB assets are emerging. As the RMB exchange rate becomes more undervalued, multinational institutions are beginning to reassess re-entering the market.

Third, the US dollar index is entering a structural weakness phase. The Fed’s rate cut cycle is about to begin, and the dollar’s upward cycle may have already entered its final stages.

International investment banks generally hold a positive outlook:

Deutsche Bank believes that the recent strength of the RMB against the dollar may signal the start of a new long-term appreciation cycle. The bank forecasts the RMB to appreciate to 7.0 against the dollar by the end of 2025, and further to 6.7 by the end of 2026, an appreciation of about 4.2%.

Morgan Stanley also expects a moderate RMB appreciation, predicting the dollar will continue to weaken over the next two years. Their forecast suggests that by 2026, the dollar index could fall back to around 89, with the RMB/USD exchange rate reaching approximately 7.05, implying an appreciation of about 0.7%.

Goldman Sachs adopts the most aggressive stance. Its global FX strategy team has previously stated that the RMB’s real effective exchange rate is undervalued by 12% relative to the ten-year average, with an even greater undervaluation of 15% against the dollar. Based on this undervaluation and the steady progress of China-U.S. trade negotiations, Goldman Sachs expects the RMB to appreciate to 7.0 against the dollar within the next 12 months. Additionally, the firm anticipates that the Chinese government will prefer to stimulate the economy through other policy tools rather than currency devaluation, further supporting the RMB.

Key Factors Influencing USD to RMB Exchange Rate Movements

The future trajectory of the exchange rate depends on the interaction of multiple complex factors, both from international markets and China’s own policy stance.

Evolution of the US Dollar Index: The strength or weakness of the dollar directly determines the USD to RMB movement. In the first five months of 2025, the dollar index fell by 9%, marking the worst start to the year. Market expectations are that the Fed’s rate cut cycle will lead to lower short-term interest rates, which could cause the dollar to continue depreciating over the next 12 months, providing an appreciation opportunity for Asian currencies, including the RMB.

Progress in China-U.S. Negotiations: Currently, communication channels between China and the US remain open, but the durability of trade frictions remains uncertain. An agreement similar to the one reached in Geneva in May quickly fell apart, reminding markets not to be overly optimistic. If future negotiations ease tariffs, the RMB will receive strong support; conversely, escalating tensions could reintroduce depreciation pressures.

Federal Reserve’s Policy Stance: The Fed’s monetary policy is crucial for the dollar’s trajectory. Although signals of rate cuts have been issued for the second half of 2024, the magnitude and pace of rate reductions in 2025 will depend on inflation data, employment market performance, and new government policies. If inflation remains above target, the Fed may slow or halt rate cuts, supporting a stronger dollar; if the economy slows significantly, accelerated rate cuts could weaken the dollar. The RMB generally moves inversely to the dollar index.

Chinese Central Bank’s Policy Signals: Since the RMB’s central parity mechanism was improved in 2017 by introducing a “countercyclical factor,” the PBOC has gained stronger guidance over the exchange rate. In the context of a sluggish real estate market and weak domestic demand, the PBOC tends to maintain an accommodative monetary policy to support economic recovery, which usually exerts downward pressure on the RMB. However, if accommodative policies are combined with stronger fiscal stimulus to stabilize the economy, the RMB could be supported in the long term.

Progress of RMB Internationalization: The increasing use of the RMB in global trade settlements and the expansion of currency swap agreements with other countries underpin the long-term trend of RMB internationalization. However, given that the US dollar remains the dominant reserve currency, the short-term challenge to its status remains significant.

How Should Investors View RMB Allocation Opportunities?

For investors interested in RMB assets, the key is to grasp the following four judgment dimensions:

1. The stance of the central bank’s monetary policy. Looser policies such as rate cuts and reserve requirement reductions increase RMB supply, typically weakening the exchange rate; tightening policies like rate hikes and reserve ratio increases tend to tighten liquidity and support RMB appreciation.

2. Domestic economic data performance. Indicators such as GDP growth, PMI, CPI, and fixed asset investment directly reflect economic vitality. Strong economic data attract sustained foreign investment, increasing demand for RMB and pushing up the exchange rate; sluggish data have the opposite effect.

3. The overall direction of the US dollar index. The Fed’s policies, ECB policies, and global risk appetite collectively determine the dollar index trend. When the dollar weakens, the RMB usually gains appreciation potential.

4. The official management approach to the exchange rate. The PBOC guides the exchange rate through the central parity mechanism and countercyclical factors. Monitoring subtle shifts in official signals can help pre-empt exchange rate policy adjustments.

Summary

The RMB exchange rate is at a critical cyclical transition point. Looking back at history, the five-year period from 2020 to 2024 saw a complete cycle of “appreciation → depreciation → stabilization.” 2026 is likely to mark the beginning of a new cycle.

Forecasts for the USD to RMB exchange rate indicate that, against the backdrop of steady China-U.S. trade negotiations, a weakening dollar index, and long-term undervaluation of the RMB, upward pressure on the RMB is accumulating. While predictions from institutions like Deutsche Bank, Morgan Stanley, and Goldman Sachs vary in magnitude, they share a common direction—the RMB is expected to resume an appreciation trajectory.

For ordinary investors, the key to capitalizing on RMB-related opportunities is to monitor macro policies and economic data trends. FX markets are primarily driven by macro factors, and the data released by various countries are transparent and accessible. Coupled with the large trading volume and a well-established two-way trading mechanism, the market is relatively fair for individual investors. As long as investors can accurately judge the trends of these four key factors, their chances of profit can be significantly improved.

Over the next decade, the RMB’s appreciation cycle may be as long as the current depreciation cycle. Despite fluctuations caused by dollar movements and geopolitical events, the overall direction remains clear.