Renminbi appreciation reaches new heights: the three forces behind breaking the 7 mark in December

The RMB to USD exchange rate recently hit a new high, with the USD to offshore RMB (USD/CNH) falling to 6.9965, marking the first break below 7 since September last year. At the same time, the USD to onshore RMB (USD/CNY) also dropped to 7.0051, a new low since May 2023. This breakthrough moment reflects the market’s new understanding of the RMB’s appreciation trend.

Weak US dollar is the main driver

The US dollar index has fallen more than 10% this year, and over the past month, it has declined by more than 2%. Driven by the Federal Reserve’s rate cut cycle and the global de-dollarization wave, the weakening dollar has become an important backdrop for the RMB’s appreciation. When the dollar is under overall pressure, the RMB naturally gains relative strength, which is the basic logic of the exchange rate market.

Central bank guidance policies are clear

The attitude of China’s central bank is equally crucial. Since the beginning of the year, the central bank has continuously raised the midpoint (reference rate) of the RMB exchange rate, signaling a clear direction for appreciation. This policy tilt is not passive response but proactive guidance, indicating the central bank’s support for RMB appreciation. Meanwhile, the central bank’s delay in further interest rate cuts also further supports the RMB’s strong position.

Year-end foreign exchange settlement adds fuel

In 2025, China’s trade surplus continued to expand. After December, enterprises concentrated on annual foreign exchange settlement operations. This seasonal foreign exchange conversion created a “push” effect. Coupled with liquidity tightening in the offshore market due to holiday effects, it further amplified the RMB’s appreciation.

Wang Qing, Chief Macro Analyst at Orient Securities, pointed out, “Weak US dollar and seasonal foreign exchange conversions by exporters have driven the RMB’s strength. Continued RMB appreciation will help enhance China’s capital market attractiveness to foreign investors.”

Market consensus: RMB is still undervalued

Although the RMB to USD exchange rate has hit a recent high, from the perspective of trade-weighted indices and China’s economic fundamentals, the RMB still has room for overvaluation. This is why professional institutions remain optimistic about further appreciation in 2026.

Goldman Sachs’s view is the most aggressive. The bank believes the RMB is undervalued by 25% relative to economic fundamentals and expects the USD to RMB rate to fall to 6.90 by mid-2026, and further down to 6.85 by the end of the year. This implies over 3% upside potential for the RMB.

ANZ Bank’s senior strategist Xing Zhaopeng is relatively cautious, expecting USD to RMB to fluctuate between 6.95 and 7.00 in the first half of 2026, showing a short-term stability outlook.

Bank of America emphasizes the role of exporters. The bank believes that easing US-China relations will improve exporters’ prospects, and the scale of USD selling by Chinese exporters in 2026 will further expand. It forecasts the USD to RMB will fall to 6.80 by the end of the year, representing the most optimistic prediction.

Where will the exchange rate go in 2026?

From the perspectives of the three major institutions, the general trend of RMB appreciation in 2026 has become a consensus. Key variables include the Federal Reserve’s policy direction, US-China trade relations, and global economic growth expectations. If these conditions continue to support RMB appreciation, breaking below 7 may just be the beginning, and the target range of 6.80-6.90 is not out of reach.

For investors, the trend of USD to RMB exchange rate is not only a technical breakthrough but also reflects subtle adjustments in the global economic landscape. The RMB’s appreciation channel is gradually opening.