RMB appreciation cycle begins: HKD to RMB exchange rate comparison between 2022 and the current situation

The Renminbi is Experiencing a Cycle Turn

Since 2025, the performance of the renminbi exchange rate has shown a completely different trend. The USD to renminbi exchange rate has gradually retraced from its high at the beginning of the year, and in mid-December, it consecutively broke through key levels such as 7.05 and 7.04, reaching a new high in nearly 14 months. Behind this shift is a new cycle that could last up to ten years, quietly taking shape.

Looking back over the past three years, the renminbi has been on a depreciation trajectory. Especially since May 2023, the USD to renminbi exchange rate has firmly stayed above the 7.0 level, with market expectations for the renminbi clearly weakening. But today, this situation is reversing.

In comparison, the USD to HKD trend in 2022 better illustrates the issue. That year, the renminbi experienced its largest depreciation in recent years, falling about 8% for the year. The recent rebound, however, confirms a market cycle shift.

Three Major Supports for a Stronger Renminbi in the Future

Market institutions generally hold a positive outlook for the medium- to long-term performance of the renminbi. Deutsche Bank forecasts the USD to RMB exchange rate will rise to 7.0 by the end of 2025 and further appreciate to 6.7 in 2026; Goldman Sachs even boldly predicts that the renminbi could break through the 7.0 threshold within the next 12 months, potentially faster than market expectations.

These optimistic forecasts are based on three key factors:

Continued resilience of China’s exports. Despite complex global economic and trade environments, China’s exports remain robust, providing a solid demand foundation for the renminbi.

Reallocation of renminbi assets by foreign investors. Over the past two years, foreign capital has been flowing out, but as the renminbi’s valuation recovers, international investors are gradually readjusting their allocations. Data from Goldman Sachs shows that the real effective exchange rate of the renminbi is undervalued by 12% compared to its ten-year average, with an even greater undervaluation of 15% against the US dollar, making it attractive for foreign capital to re-enter.

Structural weakness of the US dollar index. The Federal Reserve has entered a cycle of rate cuts, and although short-term volatility exists, the dollar faces pressure in the medium to long term. After the Fed’s rate cut in December, the dollar index dipped to a low of 97.869, indicating that dollar weakness may become the new normal.

US-China Trade Relations Determine Short-term Trends

However, recent progress in US-China economic and trade negotiations has become a key variable. The Kuala Lumpur talks in early December resulted in a new trade ceasefire consensus— the US will reduce tariffs on fentanyl-related goods from 20% to 10%, and suspend the 24% retaliatory tariff increase until November 2026. Additionally, both countries agreed to temporarily halt measures such as rare earth export controls and port fees, and to expand agricultural product purchases.

But the stability of this agreement is uncertain. A similar ceasefire reached in Geneva in May collapsed quickly afterward. If US-China tensions escalate again, the renminbi exchange rate will face renewed downward pressure. Therefore, the future direction of US-China trade relations is the most important external factor in judging the USD to RMB exchange rate.

Central Bank Policies and Economic Fundamentals Cannot Be Ignored

Internally, the monetary policy stance of the People’s Bank of China (PBOC) is crucial. Currently, the central bank favors easing policies to support economic recovery, especially amid a sluggish property sector. Measures such as interest rate cuts or reserve requirement ratio reductions may bring short-term depreciation pressure, but if combined with strong fiscal stimulus to stabilize the economy, they will long-term support the renminbi.

China’s economic data also warrants close attention. Indicators like GDP, PMI, CPI, and fixed asset investment directly influence foreign capital inflows. When the economy grows steadily, foreign investment continues to flow in, naturally strengthening the renminbi; the opposite is also true.

Furthermore, the internationalization of the renminbi provides long-term support. The increasing use of the renminbi in global trade settlements and the expansion of currency swap agreements with other countries are building a long-term foundation for the renminbi.

Can the Renminbi Enter a New Phase Now?

For investors, there are indeed trading opportunities with renminbi-related currencies at this stage, but the key is to grasp the rhythm. In the short term, the renminbi is expected to remain relatively strong, with limited range-bound fluctuations. The likelihood of a rapid appreciation into the 7.0 level before the end of 2025 is low.

Going forward, three variables should be closely monitored: the trend of the US dollar index, signals from the renminbi midpoint rate adjustments, and the specific implementation pace of China’s stabilizing growth policies. Only by integrating these three factors can one more accurately seize opportunities.

Deep Investment Logic: Four Dimensions to Track the Renminbi Trend

To achieve long-term profits, investors should systematically monitor the renminbi from four perspectives:

First, the monetary policy cycle of the central bank. Rate cuts and reserve requirement ratio reductions increase money supply, exerting depreciation pressure; while rate hikes and reserve ratio increases tighten liquidity, supporting the currency. Historical data from the past decade shows that policy cycles often shape a decade-long exchange rate trend.

Second, the relationship between economic growth and foreign capital flows. When China’s economy outperforms other emerging markets or maintains stable growth expectations, foreign capital inflows increase, boosting demand for the renminbi; conversely, slowing or shifting foreign investment puts downward pressure on the renminbi.

Third, the linkage between the US dollar index and Federal Reserve policies. The USD and renminbi often move inversely. Signals of Fed rate cuts or hikes are key to USD trends, which in turn influence the renminbi’s performance.

Fourth, the guidance of official exchange rate policies. The PBOC uses daily midpoint rates and counter-cyclical factors to dynamically guide the exchange rate. While short-term impacts are evident, the medium- to long-term trend is primarily determined by market direction.

Unique Volatility Characteristics of Offshore Renminbi (CNH)

It is important to note that offshore renminbi (CNH) and onshore renminbi (CNY) exhibit significant differences. CNH is traded in Hong Kong, Singapore, and other offshore markets, less constrained by capital controls, and more sensitive to global market sentiment, often showing greater volatility. CNY is managed by the People’s Bank of China, with relatively stable fluctuations.

By 2025, offshore renminbi fully reflects this characteristic. Early in the year, influenced by US tariff policies, it broke below 7.36, but recently, with improving US-China relations and rising expectations of Fed rate cuts, it has rebounded over 4%. This rapid responsiveness makes CNH an important window into market expectations.

Overall Outlook and Conclusion

Comparing the USD to RMB trend in 2022 and this year, the renminbi has entered a new appreciation cycle. This cycle could last up to ten years, during which short- to medium-term fluctuations caused by USD movements and unexpected events are possible, but the overall direction is established.

The key is that investors need to incorporate macro factors into their analysis framework. The foreign exchange market involves abundant transparent data, large trading volumes, and two-way trading, making it more fair than other asset classes. By mastering the four tracking dimensions—policy cycles, economic cycles, USD cycles—and understanding their interactions, one can significantly improve profit prospects.

Currently, the renminbi is at a turning point from depreciation to appreciation, presenting a rare medium- to long-term opportunity for those willing to study in depth.