Renminbi Appreciation Cycle Begins? Exchange Rate Trends and Investment Guide Until the End of 2025

From Historical Data: Turning Points of the Renminbi

Since 2025, the trend of the Renminbi exchange rate has experienced a significant turning point. Reviewing the USD/RMB exchange rate over the past five years reveals several distinct cyclical changes:

In early 2020, during the initial outbreak of the pandemic, the exchange rate fluctuated between 6.9 and 7.0. However, as China took the lead in controlling the pandemic and achieved an economic rebound, coupled with the Federal Reserve’s emergency rate cuts, the Renminbi appreciated to around 6.50 by the end of the year, gaining approximately 6% annually.

2021 was a strong year for the Renminbi, benefiting from sustained growth in China’s exports and prudent monetary policies. The USD/RMB remained within a narrow range of 6.35 to 6.58, marking the period when the Renminbi was at its strongest relative to the US dollar.

But starting in 2022, the situation reversed. The Federal Reserve’s aggressive rate hikes pushed the US dollar index to historic highs, while China’s economy faced a real estate crisis and pandemic control measures, leading to an approximately 8% depreciation of the Renminbi throughout the year, falling from 6.35 to above 7.25, the largest decline in recent years.

Between 2023 and the first half of 2024, the Renminbi continued to be under pressure, fluctuating between 7.0 and 7.35. However, in the second half of 2024, the situation began to change—US dollar strength waned, Chinese policies gained support, and the Renminbi started to show resilience.

Recent Turning Point: Signals of a Strong Renminbi Rebound

The trend in 2025 warrants even closer attention. At the start of the year, impacted by US tariff policies, the USD/RMB exchange rate surged to a high of 7.40, with offshore Renminbi approaching 7.36. But this depreciation did not last long.

As US-China trade negotiations eased and the Federal Reserve’s rate cuts materialized, the Renminbi began to rebound significantly. By mid-December, the onshore USD/RMB had broken through 7.05, later reaching 7.0404, hitting a new 14-month high. The offshore Renminbi (CNH) also strengthened, breaking through 7.05 on December 15, rebounding over 4% from the early-year high.

What does this turning point reflect? The market generally believes that the Renminbi depreciation cycle starting in 2022 has peaked, and the Renminbi is expected to enter a new phase of medium- to long-term appreciation.

Core Factors Supporting Renminbi Appreciation

Structural Weakening of the US Dollar Index

In the first half of 2025, the US dollar index sharply declined from 109 at the start of the year to around 98, a drop of nearly 10%, marking the weakest first half since the 1970s. Although it rebounded in November due to expectations of Fed rate cuts easing, after December, with actual rate cuts and dovish signals, the dollar index weakened again, bottoming at 97.869 and returning to the 97.8–98.5 range.

A weaker US dollar naturally supports the Renminbi. This aligns with historical patterns—when the euro recovered strongly in 2017 amid Europe’s economic revival, the dollar index fell 15% that year, and USD/RMB also declined, showing a high correlation.

Stabilization of US-China Trade Relations

Although uncertainties remain in US-China trade negotiations, recent agreements have shown positive signals. The US has reduced tariffs on Chinese goods related to fentanyl from 20% to 10%, and temporarily suspended the 24% retaliatory tariffs until November 2026. Both sides agreed to delay export controls on rare earths and port fee measures, while expanding US agricultural purchases.

While similar agreements in the past (such as the Geneva agreement in May this year) have quickly fallen apart, the relative stability of trade relations at least alleviates market depreciation expectations, providing some breathing room for the Renminbi.

Federal Reserve Entering a Rate Cut Cycle

The Fed began rate cuts in the second half of 2024, and further adjustments are expected in 2025. Although the magnitude and pace of rate cuts depend on inflation and employment data, the overall trend is toward easing, which generally puts downward pressure on the dollar and benefits the Renminbi.

Supportive Chinese Economic Policies

The People’s Bank of China tends to maintain monetary easing to support economic recovery. While short-term easing may exert some depreciation pressure on the Renminbi, combined with stronger fiscal stimulus, if economic stabilization and sustained export growth are achieved, it will be beneficial for the Renminbi in the long run.

China’s exports remain resilient—being the world’s leading manufacturing hub, export growth remains steady, providing solid support for the Renminbi.

What Do International Institutions Say About the Renminbi Outlook?

Deutsche Bank believes the Renminbi is entering a long-term appreciation cycle, estimating that 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 offers a more insightful perspective. Its Global FX Strategist Kamakshya Trivedi points out that the real effective exchange rate (REER) of the Renminbi is undervalued by 12% relative to its ten-year average, and even more so against the US dollar at 15%. Based on this assessment, Goldman Sachs has significantly raised its USD/RMB forecast for the next 12 months from 7.35 to 7.0.

Goldman Sachs’s logic is: Strong Chinese exports will support the Renminbi, and the Chinese government prefers to use other policy tools to boost the economy rather than pursue currency depreciation. This suggests that the Renminbi is unlikely to depreciate passively and may even appreciate through policy guidance.

Short-term Investment Advice: Timing Is Key

For investors interested in trading Renminbi-related currency pairs, the following points are worth noting:

Timing Window: The Renminbi is expected to remain relatively strong in the short term, with fluctuations generally moving inversely to the US dollar within a limited range. The rapid appreciation into below 7.0 before the end of 2025 is less likely, so there’s no need to rush into large positions at current levels.

Three Key Indicators to Watch:

• US Dollar Index Trend — whether it can stay below 98, directly determines the Renminbi’s ceiling
• Renminbi Mid-rate Policy Signals — official guidance from the People’s Bank of China often influences short-term direction
• China’s Growth Stabilization Policies — economic data will influence foreign capital inflows

Framework for Judging the Long-term Trend of the Renminbi

Rather than chasing short-term fluctuations, it’s better to establish a systematic judgment framework. The ultimate movement of the Renminbi exchange rate is determined by four major factors:

Factor One: People’s Bank of China’s Monetary Policy Orientation

The central bank’s easing policies (rate cuts, reserve requirement reductions) usually trigger depreciation expectations, while tightening (rate hikes, reserve ratio increases) support the currency. Historical observation shows that during the period when the PBOC cut loan rates six consecutive times and significantly lowered reserve requirements in 2014, USD/RMB rose from 6.3 to 7.4, demonstrating the profound impact of monetary policy.

Factor Two: China’s Economic Fundamentals

Stable and improving economic growth attracts sustained net inflows of foreign investment, increasing demand for the Renminbi. Key indicators include:

• Quarterly GDP releases — macroeconomic health
• Monthly PMI — manufacturing and services sector activity
• Monthly CPI — inflation levels and policy space
• Urban fixed asset investment — economic momentum

Factor Three: US Dollar Index Trend

The strength or weakness of the dollar directly influences USD/RMB direction. Diverging policies between the Fed and the European Central Bank are often key triggers for dollar fluctuations. When the dollar index surpasses 100 and loses momentum, it often signals a reversal.

Factor Four: Official Exchange Rate Management Mechanism

Unlike freely floating exchange rates, the Renminbi uses a “closing price + basket currency exchange rate changes + counter-cyclical factors” model for the mid-rate (since May 2017). The People’s Bank of China adjusts the daily mid-rate to send policy signals. While this influences short-term exchange rates, the medium- to long-term trend is still driven by fundamental market factors.

Why Is Offshore Renminbi (CNH) More Volatile?

It’s important to note that offshore Renminbi (CNH) and onshore Renminbi (CNY) can diverge.

CNH trades freely in international markets like Hong Kong and Singapore, unconstrained by capital controls, making it more sensitive to global market sentiment. In early 2025, CNH briefly broke below 7.36, with a larger decline than onshore, exemplifying this characteristic. Conversely, CNY is more influenced by official interventions, resulting in more moderate fluctuations.

Investors should be aware: Excessive volatility in CNH often foreshadows subsequent adjustments in onshore exchange rates. When offshore Renminbi depreciates sharply, the People’s Bank of China typically intervenes more actively (e.g., issuing offshore bonds to absorb liquidity).

Outlook for 2026: How Certain Is the Appreciation?

Based on the above analysis, the general direction of Renminbi appreciation in 2026 is gradually taking shape, but several potential risks should be monitored:

Positive Factors: The trend of foreign capital reallocating into Renminbi assets is strengthening, China’s export resilience persists, and the structural weakness of the US dollar remains.

Uncertainties: US-China trade tensions could flare up again; the Fed’s policy shift might be less dovish than expected; China’s economic growth may underperform.

Investor Takeaway: Similar currency cycles tend to last 8 to 10 years, but they inevitably involve multiple short- and medium-term fluctuations. Mastering the four key factors above is essential to navigate these waves and seize opportunities.

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