## The 2026 Outlook for USD to RMB: Bottoming Out or Continuing to Watch?

2025 marks a turning point for the RMB. After three consecutive years of depreciation from 2022 to 2024, the USD to RMB exchange rate finally slowed down this year. As of mid-December, the USD has broken through the 7.05 barrier, reaching a nearly 14-month high, with an appreciation of about 3% for the year. The offshore RMB (CNH) performed even more strongly, fluctuating between 7.02 and 7.4, reflecting a re-pricing of the RMB in international markets.

## Analysis of the Three Driving Forces Behind the RMB Exchange Rate

### The USD Logic Behind USD to RMB

The movement of the US Dollar Index is the primary factor influencing USD to RMB. In the first half of 2025, the USD Index fell from 109 at the start of the year to 98, a decline of nearly 10%, marking the weakest first half since the 1970s. However, in the second half, as market expectations of Fed rate cuts cooled and the US economy performed strongly, the USD Index rebounded above 100. By December, with the Fed implementing rate cuts, the USD Index retreated again to the 97.8-98.5 range.

While a short-term strengthening of the dollar usually puts pressure on the RMB, the positive impact of the US-China agreement has offset this pressure. Notably, **a mild strengthening of the dollar generally correlates inversely with the RMB**, so investors need to closely monitor USD Index fluctuations, which are crucial for judging the future direction of USD to RMB.

### Uncertainty in US-China Negotiations

The latest round of US-China trade talks in Kuala Lumpur sent positive signals—US tariffs related to fentanyl were reduced from 20% to 10%, and the 24% additional tariffs remain suspended until November 2026. Both sides also agreed to delay implementing export controls on rare earths and expand agricultural product purchases.

However, the durability of this "trade truce" remains uncertain. The quick breakdown of the Geneva agreement in May this year serves as a warning that **the future development of US-China trade relations remains the most important external variable affecting USD to RMB**. If the current situation persists, the RMB exchange rate environment is expected to stabilize; if tensions escalate, the RMB will face renewed pressure.

### Micro-adjustments in Central Bank Policies

The Federal Reserve’s monetary policy has a profound impact on the dollar. After signaling rate cuts in the second half of 2024, the magnitude and pace of rate cuts in 2025 will still be influenced by inflation, employment, and Trump’s policies. If inflation remains high, the Fed may slow down rate cuts, supporting a stronger dollar; conversely, if the economy slows, accelerated rate cuts will weaken the dollar.

Meanwhile, China’s central bank tends to adopt a loose monetary policy to support economic recovery. Although loose monetary policy exerts short-term downward pressure on the RMB, if combined with strong fiscal stimulus stabilizing the economy, it will boost the RMB in the long run. Therefore, **the medium- to long-term trend of USD to RMB depends on the relative directions of monetary policies in both countries**.

## Historical Data and Cyclical Patterns of USD to RMB

The exchange rate evolution over the past five years reveals clear cycles:

**2020-2021 Pandemic Period**: The RMB appreciated significantly, with USD to RMB staying below 7, reaching a low near 6.3. China’s early control of the pandemic and recovery, along with widening US-China interest rate differentials, were the main drivers of RMB strength.

**2022 Turning Year**: The Fed’s aggressive rate hikes drove the USD Index sharply higher, with USD to RMB rising from 6.35 to over 7.25, a depreciation of about 8%, the largest in recent years. Meanwhile, China’s pandemic policies hampered economic growth, and a real estate crisis worsened market confidence.

**2023-2024 Dormant Period**: Although the USD weakened somewhat, the RMB remained under pressure within the 7.0-7.35 range. China’s economic recovery lagged expectations, real estate debt risks persisted, consumption remained sluggish, and high US interest rates kept the USD weak overall, leading to a generally weak USD to RMB trend.

## How Do International Investment Institutions View the USD to RMB Outlook?

The market generally believes that RMB is at a cyclical turning point—**the depreciation cycle starting in 2022 may have ended, and RMB is expected to enter a new phase of medium- to long-term appreciation**.

**Deutsche Bank** suggests that recent RMB strength may signal the start of a long-term appreciation cycle. The bank forecasts USD to RMB will rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026, implying an appreciation potential of about 4-6% over the next year.

**Goldman Sachs** is even more optimistic. Its global FX strategists have sharply revised their 12-month USD to RMB forecast from 7.35 down to 7.0. The logic is that the current RMB real effective exchange rate is undervalued by about 12% relative to the 10-year average, and the USD undervaluation is as high as 15%. Based on progress in US-China trade negotiations and the RMB’s undervaluation, Goldman expects the "breaking 7" moment to arrive sooner than market expects. Additionally, Goldman emphasizes that strong Chinese exports will support the RMB, and the government prefers to use other policy tools to boost the economy rather than devalue.

## Investment Opportunities in USD to RMB

For investors, **there are trading opportunities in RMB-related currency pairs, but timing is crucial**.

In the short term, RMB is expected to remain relatively strong, with limited fluctuations inversely correlated with the dollar. The likelihood of rapid appreciation below 7.0 before the end of 2025 is low. Therefore, the window for aggressive bottom-fishing has not yet opened.

Investors should focus on three key variables:

1. **USD Index Trends**—if the dollar rebounds above 101, USD to RMB may revisit 7.2-7.3; if the dollar continues to fall below 97, RMB appreciation momentum will strengthen.

2. **RMB Central Parity Rate Signals**—the People’s Bank of China (PBOC) guides the exchange rate through daily fixing, reflecting official intentions, which is an important short-term indicator.

3. **China’s Growth Stabilization Policies**—the pace of fiscal stimulus and real estate support policies directly affects RMB attractiveness.

## Four Investment Strategies for Judging USD to RMB Trends

### 1. Track PBOC Monetary Policy Signals

The PBOC’s easing or tightening policies directly influence money supply and RMB prices. Rate cuts or reserve requirement ratio reductions increase RMB supply expectations, exerting downward pressure; conversely, rate hikes or reserve ratio increases stimulate RMB strength. Historically, during the 6 consecutive rate cuts in 2014, USD to RMB rose from 6.3 to 7.4, demonstrating the profound impact of monetary policy.

### 2. Interpret China’s Economic Fundamentals

China’s economic data are key to foreign capital flows. When GDP grows steadily, PMI remains positive, and CPI stays moderate, foreign investment inflows support RMB demand; if growth slows, employment worsens, and foreign capital shifts elsewhere, RMB faces pressure.

Important indicators include: GDP (quarterly), PMI (monthly), CPI (monthly), and urban fixed asset investment (monthly).

### 3. Benchmark USD Index and Fed Policies

USD Index movements are highly correlated with USD to RMB. In 2017, when the Eurozone’s economy unexpectedly recovered and the ECB signaled tightening, the USD Index fell 15% for the year, and USD to RMB also declined in tandem. The Fed’s rate hike or cut decisions directly influence dollar strength, thus affecting USD to RMB trajectory.

### 4. Watch for Official Exchange Rate Management Intentions

Since May 2017, the RMB has adopted a "closing price + basket currency changes + counter-cyclical factors" quoting model, strengthening official guidance. While this mechanism has a noticeable short-term impact on the exchange rate, the medium- to long-term trend still depends on the overall currency market direction. Investors need to balance macro trends with official guidance.

## Differences Between Offshore RMB (CNH) and Onshore RMB (CNY)

Offshore RMB (CNH), traded in markets like Hong Kong and Singapore, has free capital flows and better reflects global market sentiment. Onshore RMB (CNY), under capital controls, is guided by the PBOC through the daily fixing and interventions, so **CNH tends to be more volatile than CNY**.

In 2025, CNH showed a generally oscillating upward trend. Early in the year, impacted by US tariffs and the USD Index soaring to 109.85, CNH briefly broke below 7.36. The PBOC issued 60 billion offshore bills to absorb liquidity and tightened the fixing. Recently, with easing US-China dialogue, China’s stabilizing policies, and rising Fed rate cut expectations, CNH strengthened significantly, breaking 7.05 on December 15, rebounding over 4% from the early-year high, reaching a 13-month high.

## Overall Outlook

**USD to RMB is at a long-cycle turning point**. The depreciation cycle that began in 2022 has shown signs of exhaustion, and RMB is likely to enter a new appreciation phase. This cycle may last about a decade, similar to past policy cycles, with short-term fluctuations due to dollar volatility and unexpected events, but the overall trend is becoming clearer.

For investors, understanding and monitoring the four key factors—central bank policies, economic fundamentals, USD trends, and official guidance—can greatly improve profit prospects in USD to RMB trading. The forex market, based on transparent data, high trading volume, and supporting two-way trading, is a relatively fair and transparent investment field.