The RMB to USD exchange rate has shown a clear upward trend today. Will there be a reversal in the second half of 2025?

The Renminbi Breaks Out of a Three-Year Depreciation Dilemma, Exchange Rate Trends Experience a Key Turning Point

Looking back at the 2025 Renminbi market, it was a story of dramatic reversal. In the first half of the year, the currency was steadily retreating under the pressure of a strong US dollar, but by the end of the year, the trend suddenly reversed. The USD against the Renminbi gradually retreated from its high at the beginning of the year, reaching 7.0404 by mid-December, hitting a 14-month high. Onshore and offshore markets fluctuated within 7.04 to 7.3 and 7.02 to 7.4 ranges respectively, with a cumulative appreciation of 3% for the year, marking the official end of a three-year depreciation cycle since 2022.

The story behind this shift was not an overnight event. In the first half, the Renminbi faced multiple pressures—rising uncertainties in international trade policies, a high US dollar index, and offshore exchange rates once falling below 7.40. However, in the second half, the easing of US-China relations and the dual positive factors of a weakening US dollar index helped the Renminbi gradually reverse its downward trend, beginning a gentle appreciation phase.

What Are the Key Drivers Behind Today’s Exchange Rate Pattern?

Fluctuations in the US Dollar Index have become the primary variable determining exchange rate movements. At the start of the year, the dollar index fell from a high of 109 to 98, a decline of nearly 10%, marking the weakest first half since the 1970s. But by November, due to market expectations of a slowdown in Fed rate cuts and better-than-expected US economic performance, the dollar index rebounded and repeatedly stabilized above the 100 mark. In December, with the Fed’s rate cuts as scheduled and increasing expectations of a dovish stance, the dollar index weakened again, touching a low of 97.869.

Progress in US-China Trade Negotiations also provided emotional support. In the latest round of talks, the US reduced tariffs related to fentanyl from 20% to 10%, and paused some reciprocal tariffs. Although whether this truce can be sustained long-term remains uncertain (as the Geneva agreement in May quickly fell apart), it at least injected market stability expectations.

Federal Reserve Policy Direction has profound influence. The magnitude and pace of rate cuts in 2025 will depend on inflation, employment performance, and the policy environment. Persistent inflation might cause the Fed to slow down rate cuts, supporting the dollar; conversely, economic weakness could accelerate rate cuts, weakening the dollar. The Renminbi and the US dollar index usually move inversely.

People’s Bank of China’s Monetary Policy also plays a crucial role. Currently, the central bank tends to maintain an accommodative stance to support economic recovery. Rate cuts or reserve requirement ratio reductions could exert depreciation pressure on the Renminbi. However, if easing policies are coupled with strong fiscal stimulus to stabilize the economy, it could, in the long run, support Renminbi appreciation.

Renminbi Internationalization is quietly reshaping the market landscape. The share of Renminbi in global trade settlement continues to rise, and the expansion of currency swap agreements among countries provides long-term support for the currency’s stability. Nonetheless, in the short term, the US dollar’s reserve currency status remains difficult to challenge.

Looking Ahead: Three Major Forces Supporting Renminbi Appreciation Cycle

Market consensus is gradually coalescing: the Renminbi is at a turning point, and the depreciation trend that began in 2022 may be coming to an end. Looking toward 2026, three key factors could drive the exchange rate higher:

First, China’s export resilience remains strong. Despite global economic uncertainties, China’s manufacturing competitiveness and export growth are still promising.

Second, a new trend of foreign capital re-allocating into Renminbi assets is emerging. With increased attractiveness of A-shares and bond markets, international investors are gradually regaining interest in Renminbi assets.

Third, a structural weakening of the US dollar index has taken shape. Factors such as the Fed’s rate cut cycle and declining US competitiveness will exert long-term downward pressure on the dollar.

International investment banks’ forecasts support this view. Deutsche Bank believes the Renminbi is entering a long-term appreciation cycle, estimating that the USD/RMB will rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026. Goldman Sachs notes that the current real effective exchange rate of the Renminbi is undervalued by 12% relative to the ten-year average, with an even greater undervaluation of 15% against the dollar. Based on progress in US-China negotiations and the current undervaluation, Goldman Sachs expects the Renminbi to appreciate to 7.0 against the dollar within the next 12 months. The bank believes that strong Chinese exports and the government’s preference for using other policy tools rather than currency depreciation to stimulate the economy will support the Renminbi.

Where Are the Investment Opportunities in the USD/RMB Exchange Rate Today?

From a practical perspective, there are indeed trading opportunities for Renminbi appreciation right now, but timing is critical. In the short term, the Renminbi is expected to remain relatively strong, oscillating inversely with the dollar within a limited range. The likelihood of a rapid appreciation breaking below 7.0 before the end of 2025 is relatively low, so investors should patiently wait for clearer signals.

Focus on three key variables: the US dollar index movements, signals from the Renminbi midpoint rate adjustments, and the strength and pace of China’s stabilizing growth policies. These three act as a compass, guiding the future trend.

How to Judge the Renminbi Exchange Rate Trend—Four Dimensions Investors Must Know

Simple predictions are less useful than mastering a methodology. To grasp the direction of the Renminbi exchange rate, continuous observation of the following four aspects is essential:

First, the People’s Bank of China’s monetary policy stance

The PBOC’s policy stance directly influences money supply, which in turn affects the exchange rate. Easing policies (rate cuts, reserve ratio reductions) increase the money supply expectation, leading to Renminbi depreciation; tightening policies have the opposite effect. In 2014, the central bank initiated a rate cut and reserve ratio reduction cycle, causing the Renminbi to rise from around 6 to nearly 7.4, demonstrating the profound impact of policy on the exchange rate.

Second, China’s economic performance

Strong economic growth attracts foreign investment inflows, boosting demand for the Renminbi and supporting appreciation. When growth slows or attractiveness diminishes, foreign capital inflows weaken or reverse, putting pressure on the Renminbi. Investors should closely monitor GDP, PMI, CPI, fixed asset investment, and other key indicators.

Third, changes in the US dollar index

The dollar’s trend directly determines the USD/RMB exchange rate direction. The policies of the Federal Reserve and the European Central Bank are critical. For example, in 2017, the Eurozone’s robust economic recovery and signals of tightening monetary policy led to a 15% decline in the dollar index, and the USD/RMB also fell accordingly.

Fourth, official guidance signals on the exchange rate

Unlike freely floating currencies, the Renminbi is actively managed by the PBOC. The 2017 implementation of the “closing price + a basket of currencies + counter-cyclical factor” pricing model strengthened official guidance. In the short term, these signals have a significant impact, but the medium- and long-term trend is still determined by the broader currency market direction.

A Review of the Renminbi Exchange Rate Cycles Over the Past Five Years

2020: At the start of the year, USD/RMB was in the 6.9-7.0 range. Due to US-China trade tensions and the pandemic, it briefly depreciated to 7.18. As China quickly controlled the pandemic and recovered, and with the Fed cutting rates to near zero, the widening interest rate differential supported the Renminbi, which strengthened to around 6.50 by year-end, appreciating 6%.

2021: Strong exports, economic recovery, prudent monetary policy, and a low US dollar index kept USD/RMB in a narrow range of 6.35-6.58, with an average of 6.45, maintaining relative strength.

2022: Aggressive Fed rate hikes and soaring dollar index pushed USD/RMB above 7.25 from 6.35, depreciating 8% for the year—the largest decline in recent years. Meanwhile, China’s pandemic policies hampered the economy, and a real estate crisis worsened market confidence.

2023: The exchange rate fluctuated between 6.83 and 7.35, averaging 7.0, ending at 7.1. China’s post-pandemic recovery fell short of expectations, and the property debt crisis persisted. US high interest rates and a dollar index between 100-104 kept the Renminbi under pressure.

2024: The weakening of the dollar eased pressure, and fiscal and real estate support measures boosted confidence. The exchange rate experienced increased volatility, with offshore Renminbi breaking above 7.10 in August to reach a six-month high.

The Unique Performance of Offshore Renminbi

Because CNH is freely traded in international markets like Hong Kong and Singapore, with capital flows less restricted, it often exhibits larger fluctuations than the onshore CNY, which is subject to capital controls and central bank guidance. CNH more sensitively reflects global market sentiment.

In 2025, despite multiple fluctuations, CNH generally trended upward within a range. Early in the year, impacted by US tariff policies and a spike in the dollar index to 109.85, CNH briefly broke below 7.36, prompting the central bank to issue 60 billion offshore bonds to absorb liquidity and tighten the midpoint rate. Recently, with easing US-China dialogue, the implementation of China’s stabilizing growth policies, and rising expectations of Fed rate cuts, CNH has strengthened significantly. In mid-December, it broke through 7.05, rebounding over 4% from the year’s high, reaching a 13-month high.

Conclusion

As China enters a monetary easing cycle, the USD/RMB trend has become clearer. Historically, such policy cycles can last around ten years, with short- and medium-term fluctuations caused by dollar volatility and unexpected events. Investors can greatly improve their profitability in the forex market by focusing on key factors—central bank policies, economic data, dollar index movements, and official guidance. After all, the forex market is driven by macro factors, with transparent data, large trading volumes, and support for two-way trading, making it relatively fair and accessible for retail investors.