The RMB to USD exchange rate hits a two-year low. Will it continue to appreciate in 2026?

The recent strength of the Renminbi has indeed come quickly. On December 25th, the USD offshore Renminbi fell to 6.9965, and the onshore USD Renminbi dropped to 7.0051, both hitting their lowest levels since 2024. At this moment, many are asking: how long can the Renminbi’s appreciation cycle last?

The Triple Drivers Behind the Renminbi’s Appreciation

Seemingly sudden exchange rate breakthroughs are actually the result of multiple forces converging.

The USD itself is weakening. The Federal Reserve’s rate cut cycle has diminished the dollar’s attractiveness. This year, the dollar index has fallen over 10% in total, and in the past month, it has dropped more than 2%. Against the backdrop of de-dollarization, dollar depreciation is the general trend, naturally benefiting the decline of USD against the Renminbi.

The central bank is guiding in an orderly manner. Reviewing the People’s Bank of China’s (PBOC) midpoint rate data, there are clear signs of increasing expectations for the Renminbi to strengthen this year. This is not passive appreciation but an active policy choice—allowing the Renminbi to gradually appreciate.

Year-end foreign exchange settlement creates synergy. China’s trade surplus remains high in 2025, and as the year ends, companies settle large amounts of foreign exchange into RMB, directly pushing up the exchange rate. Coupled with tight offshore liquidity and holiday effects, this wave of appreciation has been particularly pronounced.

Wang Qing, Chief Macro Analyst at Orient Securities, offers an interesting perspective: the Renminbi’s appreciation is actually beneficial for China’s capital markets, as it can enhance foreign investment attractiveness. In other words, a strong Renminbi is not just about exchange rate figures but could also drive more cross-border capital flows.

Looking at fundamentals, does the Renminbi still have room to appreciate?

Interestingly, many institutions believe the story of Renminbi appreciation is not over.

Goldman Sachs’s data is quite striking: The Renminbi is undervalued by about 25% relative to economic fundamentals. What does this mean? Even if it falls to 6.90 or even 6.85, there could still be reasons for further appreciation. Goldman Sachs expects USD/CNY to fall to 6.90 by mid-2026 and further to 6.85 by the end of the year.

The Australia and New Zealand Banking Group (ANZ) is more conservative, suggesting USD/CNY might fluctuate between 6.95 and 7.00 in the first half of 2026.

Bank of America is more optimistic, noting that easing US-China relations could improve export prospects. They expect the scale of USD selling by Chinese exporters to increase further in 2026, and speculate that USD/CNY could fall to 6.80 by the end of 2026.

The 2026 exchange rate betting

From the perspective of trade-weighted exchange rates and deflation conditions, there is indeed room for the Renminbi to be undervalued. But the key variables are not just economic data; they also include Federal Reserve policy directions, global trade patterns, and central bank policy orientations.

A noteworthy detail is that the People’s Bank of China has not yet taken further easing measures. This could be based on inflation considerations or a subtle grasp of the Renminbi’s appreciation trend—avoiding aggressive rate cuts to keep the appreciation pace manageable.

Overall, a short-term break below 7 for USD/CNY is just the beginning. The probability of continued appreciation into 2026 is quite high, but the pace and magnitude will depend on the balance of three factors: USD trends, trade dynamics, and policy coordination. Those betting on Renminbi appreciation now may be riding the right big trend.