2026 RMB Exchange Rate Outlook: Is Holding RMB a Good Idea? Second Half Trends and Investment Opportunities Analysis

The Renminbi Is Experiencing a Cycle Turnaround, Signs of an Appreciation Trend Emerging

Since entering 2025, the RMB exchange market has shown a volatile pattern, but this turning point is highly significant. After three years of continuous weakness against the US dollar, the RMB has finally reversed its depreciation trend. Over the course of the year, USD to RMB has fluctuated between 7.04 and 7.3, with an overall appreciation of about 3%. The offshore market has performed slightly differently, with USD to offshore RMB fluctuating between 7.02 and 7.4, reflecting a more sensitive response of international capital to RMB exchange rate changes.

In mid-December, driven by the Federal Reserve’s rate cuts and market sentiment, the RMB against the USD broke through the 7.05 level strongly, with the rally continuing. Recently, the exchange rate reached 7.0404, creating a new high in nearly 14 months. This signals a profound shift in market expectations for the RMB.

Heavy Pressure in the First Half, Turning Point in the Second Half

Looking back at the first half of 2025, the RMB faced multiple challenges. Uncertainty in global tariff policies increased, and the US dollar index continued to strengthen. Under these combined effects, offshore RMB even briefly fell below the critical 7.40 level. This was not only a high point since 2022 but also a new historical high since the 2015 currency reform, with market fears of RMB depreciation reaching a peak.

However, in the second half, the situation began to turn around. US-China trade negotiations made steady progress, signs of easing appeared in bilateral relations, and the US dollar index shifted from strength to weakness. In this environment, the RMB exchange rate gradually stabilized and then rebounded. Against the backdrop of major non-USD currencies like the euro and pound appreciating, the RMB against the USD also began a moderate appreciation, with market sentiment gradually becoming more rational.

Four Major Factors Determining the Future of the RMB

The Pattern of US Dollar Index Fluctuations

The US dollar’s trend has the most direct impact on the RMB exchange rate. In the first half of 2025, the dollar index fell from 109 at the start of the year to about 98, a decline of nearly 10%, creating the weakest first half since the 1970s. However, after November, due to market expectations of Fed rate cuts cooling and the US economy outperforming expectations, the dollar rebounded, repeatedly crossing the 100 mark.

Although a moderate strengthening of the dollar usually puts pressure on the RMB, the positive effects of US-China agreements temporarily offset this impact. After December, the Fed’s rate cut policy was officially implemented, and signals of a dovish stance in the future led to a decline in the dollar index for several days, with a low of 97.869, and it fluctuated within the 97.8-98.5 range.

The Direction of US-China Economic and Trade Relations

In the latest round of US-China economic and trade talks held in Kuala Lumpur, both sides reached a consensus to cease the trade war. The US agreed to reduce tariffs on Chinese goods involving fentanyl from 20% to 10%, and to suspend the 24% ad valorem tariff component until November 2026. Additionally, both countries agreed to delay measures such as rare earth export controls and port fees, and to expand purchases of US soybeans and other agricultural products.

However, the durability of this ceasefire remains uncertain. A similar agreement reached in Geneva last May quickly fell apart, reminding investors to stay cautious. The future development of US-China trade relations remains the most important external variable in determining the USD/RMB exchange rate. If the current situation can be maintained, the RMB exchange environment will tend to stabilize; but if friction intensifies again, markets will face renewed pressure, and the RMB could weaken.

The Pace of Federal Reserve Monetary Policy

The Fed’s policy stance directly influences the strength of the dollar. In the second half of 2024, the Fed signaled rate cuts, but the magnitude and pace of rate reductions in 2025 may be constrained by inflation data, labor market performance, and policies of the Trump administration. If inflation remains persistently above target, the Fed may slow down rate cuts or maintain high interest rates, supporting a stronger dollar; conversely, signs of economic slowdown could accelerate rate cuts and weaken the dollar.

Importantly, the RMB and the US dollar index often move inversely, and this regularity provides a basis for investors’ judgment.

The Policy Orientation of the People’s Bank of China

China’s monetary policy tends to remain accommodative to support economic recovery. Against the backdrop of a sluggish real estate market and insufficient domestic demand, the PBOC may use rate cuts or reserve requirement ratio reductions to inject liquidity, which in the short term usually exerts downward pressure on the RMB. However, if accommodative monetary policy is combined with strong fiscal stimulus, stabilizing and improving China’s economy, it will long-term boost the RMB.

Additionally, the internationalization of the RMB is a long-term support factor. Increasing use of RMB in global trade settlements, expanding currency swap agreements with other countries, and other measures could support RMB stability over the medium to long term. But in the short term, the US dollar’s status as the primary reserve currency remains difficult to challenge.

Is Holding RMB Good? Timing Is Critical

For investors considering whether trading RMB-related currency pairs is profitable, the answer depends on timing. Based on current conditions:

The RMB is expected to remain relatively strong in the short term, but overall it will fluctuate within a limited range, moving inversely to the USD. The possibility of rapid appreciation below 7.0 before the end of 2025 is relatively low. The three key variables to watch are: the trend of the US dollar index, signals from the RMB midpoint rate, and the strength and implementation pace of China’s stabilizing growth policies.

Optimistic Expectations from International Investment Institutions

The market generally believes that the RMB exchange rate is at a cycle turning point. The depreciation cycle starting in 2022 may have ended, and the RMB could enter a new phase of medium- to long-term appreciation. Looking toward the end of 2025 and 2026, three main supports are anticipated: 1) China’s export growth continues to show resilience, 2) the trend of foreign capital reallocating into RMB assets gradually establishes, and 3) the US dollar index maintains a structurally weak pattern.

Deutsche Bank’s analysis suggests that the recent strengthening of the RMB against the dollar may signal the start of a long-term appreciation cycle. The bank forecasts the USD/RMB exchange rate will rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026.

Goldman Sachs’s global FX strategist Kamakshya Trivedi stated in a May report that the bank unexpectedly raised its forecast for the USD/RMB exchange rate over the next 12 months from 7.35 to 7.0, and predicted that the RMB could “break 7” sooner than the market expects. Goldman’s reasoning is that the current real effective exchange rate of the RMB is undervalued by 12% relative to its 10-year average, with an even greater undervaluation of 15% against the dollar. Based on progress in US-China trade negotiations and the current undervaluation, Goldman expects the RMB to appreciate to 7.0 within 12 months.

Additionally, Goldman Sachs notes that strong Chinese exports will support the RMB, and expects the Chinese government to prefer using other policy tools to boost the economy rather than resorting to currency depreciation strategies.

How to Judge the Medium- and Long-term Trend of the RMB?

Investors can continuously monitor the following four dimensions to grasp the overall direction of the RMB, regardless of market fluctuations or policy adjustments:

The Degree of China’s Monetary Policy Easing or Tightening

The People’s Bank of China (PBOC) is the domestic central bank, and its monetary policy directly influences the money supply. When policies are accommodative (e.g., rate cuts or reserve requirement reductions), it is expected that money supply will increase, exerting downward pressure on the RMB; conversely, tightening policies (e.g., rate hikes or reserve ratio increases) will restrict liquidity and support RMB appreciation.

From November 2014 to 2015, the PBOC entered an easing cycle, lowering loan rates six times consecutively and continuously reducing reserve requirements, bringing the reserve ratio for small and medium financial institutions from 18% down to below 8%. During this period, USD to RMB rose from around 6.3 to over 7.4, illustrating the profound impact of monetary policy on the exchange rate.

China’s Economic Data Performance

China’s economic data significantly influence the RMB exchange rate. When the economy grows steadily or outperforms other emerging markets, it attracts sustained foreign capital inflows, increasing demand for the RMB and supporting its strength. Conversely, slowing growth reduces attractiveness, leading to decreased foreign inflows or capital shifting elsewhere, weakening the RMB.

Key data to watch include:

• GDP: Usually released quarterly, reflecting overall economic health, an important reference for investors
• PMI (Purchasing Managers’ Index): Compiled by official and Caixin, released monthly; official PMI focuses on large and medium enterprises, Caixin on small and medium enterprises
• CPI (Consumer Price Index): A key indicator of inflation, indirectly reflecting economic heat
• Urban Fixed Asset Investment: Released monthly by the National Bureau of Statistics, indicating investment momentum

USD Trends and Their Drivers

The performance of the USD directly impacts USD/RMB movements. The monetary policies of the Fed and the European Central Bank are often key drivers. For example, in early 2017, the Eurozone economy experienced its strongest recovery since the Euro debt crisis, with GDP growth surpassing the US. The ECB signaled tightening measures, boosting the euro. After the USD index broke through 100, it began to weaken, with capital flowing from USD to EUR, causing the USD index to fall 15% over the year. During the same period, USD to RMB also declined, demonstrating their high correlation.

Official Guidance on Exchange Rate

Unlike freely convertible, market-determined currencies, the RMB has undergone multiple exchange rate management reforms since 1978. On May 26, 2017, the PBOC adjusted the RMB/USD midpoint quotation model from “closing price + a basket of currencies exchange rate change” to “closing price + a basket of currencies exchange rate change + counter-cyclical factor,” easing market behavior and strengthening official guidance.

Recent observations show that this approach and pricing mechanism have a more immediate impact on short-term exchange rates, but medium- and long-term trends are still primarily determined by the overall direction of the currency market.

Review of RMB Trends Over the Past Five Years

2020: The exchange rate fluctuated between 6.9 and 7.0 at the start of the year. Due to US-China trade tensions and the pandemic, RMB depreciated to 7.18 in May. As China quickly controlled the pandemic and recovered, coupled with the Fed’s near-zero interest rates and China’s steady policies, the interest rate differential supported RMB appreciation, ending the year at around 6.50, up about 6%.

2021: China’s exports remained strong, the economy improved, and the PBOC maintained steady policies. The USD index stayed low, and USD to RMB fluctuated narrowly between 6.35 and 6.58, with an average around 6.45, maintaining relative strength.

2022: USD to RMB rose from 6.35 to over 7.25, depreciating about 8%, the largest decline in recent years. The reasons include aggressive Fed rate hikes boosting the dollar index, China’s strict pandemic controls dragging on the economy, and a worsening real estate crisis, all undermining market confidence.

2023: USD to RMB fluctuated between 6.83 and 7.35, averaging about 7.0, ending slightly higher at 7.1. China’s post-pandemic recovery was weaker than expected, the real estate debt crisis persisted, and consumption remained sluggish. The US maintained high interest rates, with the dollar index between 100 and 104, putting pressure on the RMB.

2024: The weakening of the dollar eased pressure on the RMB. Fiscal stimulus and support for the property sector boosted confidence. USD to RMB rose from 7.1 to around 7.3 by mid-year. In August, offshore RMB broke through 7.10 to reach a six-month high, with increased volatility throughout the year.

Characteristics of Offshore RMB (CNH)

Since CNH (offshore RMB) is traded in international markets like Hong Kong and Singapore, with more freedom and unrestricted capital flows, it reflects global market sentiment more directly. CNY (onshore RMB) is subject to capital controls, guided by the PBOC through the midpoint rate and forex interventions, so CNH tends to be more volatile.

Since 2025, despite multiple fluctuations, offshore RMB against the USD has generally shown a pattern of oscillating upward. Early in the year, US tariff policies and the USD index soaring to 109.85 caused CNH to briefly fall below 7.36. The PBOC responded with stabilization measures, including issuing 60 billion yuan of offshore bonds to absorb liquidity and controlling the midpoint.

Recently, with easing US-China trade tensions, China’s steady growth policies taking effect, and market expectations of Fed rate cuts rising, CNH has strengthened significantly. On December 15, CNH broke through 7.05 against the dollar, rebounding over 4% from the year’s high, reaching a 13-month high.

Final Conclusion

As China enters a cycle of sustained easing in monetary policy, the USD/RMB exchange rate will likely follow a clearer trend. Historically, similar policy-driven cycles can last up to ten years. While short-term performance will be influenced by USD movements and other events, investors who can grasp the four key factors affecting RMB trends will greatly improve their profit prospects.

The foreign exchange market is primarily macro-driven, with data from various countries being transparent and publicly available. Coupled with the large trading volume and two-way trading, it offers a relatively fair and advantageous investment environment for ordinary investors. Whether holding RMB is good depends on whether you truly understand these driving forces and can adapt your strategies flexibly based on their changes.