The three forces behind the appreciation of the Renminbi, will they continue into 2026?

In late December, the RMB against the US dollar hit a new high for the year. The offshore RMB against the US dollar fell to 6.9965, while the onshore RMB against the US dollar dropped to 7.0051, both marking their best performance since 2024. What exactly is driving this shift behind the recent appreciation?

Three Factors Driving the RMB Strength

Wang Qing, Chief Macroeconomic Analyst at Dongfang Jincheng, pointed out, “The main drivers of the RMB’s rise are the weakening US dollar and seasonal foreign exchange conversions by exporters.” This statement reveals the core logic behind this round of appreciation.

First, the overall trend of the US dollar has weakened. The Federal Reserve’s interest rate cut cycle has begun, coupled with a strengthening global de-dollarization trend. The US dollar index has fallen more than 10% this year, and in recent months, it has declined over 2%. The dollar’s decline directly benefits the RMB’s relative appreciation.

Second, the People’s Bank of China’s policy stance is clear. Throughout the year, the central bank has continuously raised the midpoint of the RMB exchange rate, signaling policy support for RMB appreciation to the market.

Third, the year-end foreign exchange settlement wave has contributed. The large trade surplus accumulated by China in 2025 was concentrated in settlement near the year’s end, with corporate foreign exchange conversion demand surging, further boosting the RMB’s upward momentum.

Can the RMB’s Appreciation Continue into 2026?

Market institutions have divided opinions on the RMB’s outlook.

ANZ Senior Strategist Xing Zhaopeng believes that the appreciation potential is limited, expecting the USD/RMB to fluctuate between 6.95 and 7.00 in the first half of 2026.

However, more institutions are optimistic about further RMB appreciation. Goldman Sachs’ analysis indicates that the RMB is undervalued by 25% relative to China’s economic fundamentals, predicting that the USD/RMB will fall to 6.90 by mid-2026 and further decline to 6.85 by the end of the year.

Bank of America holds a more optimistic view, believing that easing US-China tensions will improve export prospects, leading to further US dollar selling by Chinese exporters in 2026. Ultimately, they expect the USD/RMB to dip to 6.80 by the end of the year.

Is the RMB Really Undervalued?

Despite the recent strong upward momentum, industry experts widely believe that, based on trade-weighted exchange rates and domestic deflation pressures, there is still room for the RMB to appreciate further. Wang Qing further analyzed, “Continuous RMB appreciation will enhance China’s capital market attractiveness to international investors.”

However, it is worth noting that although the RMB is showing an appreciation trend, in the medium term, factors such as the central bank’s monetary policy stance, economic growth momentum, and external trade environment changes could restrain further RMB appreciation. The combination of several risk factors also leaves open the possibility of RMB depreciation.

Whether the RMB can maintain its appreciation momentum in 2026 ultimately depends on the interaction between US-China economic and trade developments and the central bank’s policy orientation.