Renminbi Outlook 2026: From a Seven-Year Depreciation Cycle to a New Era of Appreciation

2025 is a pivotal year for the Chinese yuan. After experiencing a continuous depreciation for nearly three years, the yuan finally broke through the psychological threshold of 7.0 at the end of the year and has now stabilized around 6.96. This not only marks the end of an era but also signifies that the yuan’s outlook has entered a new development phase. Driven by China’s export resilience and the reallocation of foreign investment into yuan assets, international major banks are optimistic about the yuan’s prospects, expecting further appreciation in 2026.

So, what is the future of the yuan? Is 2026 a year worth paying attention to this key currency pair? Let’s analyze from multiple angles.

The story behind the yuan ending three years of depreciation and breaking through 7.0

To understand the yuan’s outlook, we must first look at what happened in the past. Throughout 2025, the USD/CNY exchange rate fluctuated within a broad range of 6.95 to 7.35, appreciating about 4% over the year. This shift is significant—it signals the end of the depreciation cycle that began in 2022.

Reviewing this period, the first half of the year saw extreme challenges. Under the dual pressures of escalating global tariffs uncertainty and a strengthening US dollar index, offshore yuan once fell below 7.40 and even hit a new low since the 2015 “8.11” reform. Market pessimism about the yuan peaked, and many investors doubted whether a rebound was possible.

However, the situation quickly reversed. In the second half, US-China trade negotiations made steady progress, and relations eased. Meanwhile, the dollar index weakened from its peak, and major non-US currencies like the euro and pound appreciated. Against this backdrop, the yuan began a gentle recovery, and market sentiment gradually stabilized.

By mid-December, buoyed by Fed rate cuts and improved market sentiment, the yuan strengthened past 7.05. On December 30, this rally was consolidated, and the exchange rate officially broke the psychological barrier, reaching around 6.9623. This breakthrough not only reflects the yuan’s strength but also indicates a market shift in confidence about its future prospects.

Four core factors shaping the yuan’s outlook

To accurately assess the yuan’s future, it’s essential to understand the deep forces driving exchange rate movements. These forces come from both external and internal sources, collectively shaping the yuan’s trajectory.

Factor 1: The tug-of-war between the US dollar index and Federal Reserve policies

The USD’s movement directly impacts the yuan. In 2025, the dollar index experienced significant volatility. It started the year at a high of 109, then declined to around 98, a nearly 10% drop, marking the weakest first half since the 1970s. This decline created room for the yuan to appreciate.

In November, the dollar index rebounded, repeatedly crossing above 100, reflecting market expectations of a pause in Fed rate cuts—thanks to US economic outperformance. But this rebound was short-lived. After January 2026, as the Fed officially embarked on a new easing cycle, the dollar index fell back to between 98.8 and 98.2.

Looking ahead to 2026, this range could become a new support level for the dollar. While US economic expectations remain, the global trend of de-dollarization and the Fed’s dovish stance will continue to weaken the dollar’s rebound momentum, providing external support for the yuan’s “6 era.” The Fed is expected to cut rates 2-3 times in 2026, each cut exerting pressure on the dollar.

Factor 2: The fragile balance of US-China economic and trade relations

The yuan’s prospects depend heavily on the stability of US-China relations. The latest round of trade talks in Kuala Lumpur resulted in a new truce— the US agreed to reduce tariffs on Chinese goods related to fentanyl from 20% to 10%, and to suspend the 24% retaliatory tariffs until November 2026. Both sides also agreed to delay restrictions on rare earth exports, port fees, and expanded purchases of US soybeans.

However, this balance remains fragile. Whether the substantive improvement in US-China trade can continue into the second half of 2026 is a key external uncertainty. If the current situation persists, the yuan may remain stable; if tensions flare again, the market could face renewed pressure, and the yuan might weaken.

Factor 3: The People’s Bank of China’s policy stance

The PBOC’s monetary policy is decisive for the yuan’s outlook. Currently, China faces challenges like a sluggish property sector and weak domestic demand, prompting the central bank to maintain an accommodative stance to support recovery. Rate cuts or reserve requirement reductions tend to weaken the yuan.

However, if such easing is combined with stronger fiscal stimulus that stabilizes and accelerates economic growth, the long-term outlook for the yuan could improve significantly. Ultimately, the yuan’s future depends on whether China can achieve sustainable growth under loose monetary policy.

Factor 4: China’s external trade resilience and foreign investment flows

China’s export resilience is a key pillar supporting the yuan. Despite complex global trade conditions, China’s exports have remained robust over the past year, indicating strong foreign demand. This inflow of foreign exchange naturally supports the yuan.

Additionally, foreign capital has begun reallocating into yuan assets after years of outflows from 2022 to 2024. As expectations of yuan appreciation solidify, this trend could accelerate, creating a positive feedback loop.

2026 yuan outlook: international banks’ collective optimism

Based on a comprehensive analysis of these factors, major international banks are unusually optimistic about the yuan’s prospects.

Deutsche Bank notes that recent strength in the yuan against the dollar may signal the start of a long-term appreciation cycle. They project the USD/CNY could further decline to around 6.7 in 2026.

Goldman Sachs is even more bullish, with a medium-term target of 6.85 for USD/CNY in 2026.

The logic behind these forecasts is consistent: the yuan is at a cyclical turning point. The depreciation cycle that began in 2022 may be over, and the yuan could enter a new phase of medium- to long-term appreciation. The key supporting factors are: China’s sustained export growth; the re-establishment of foreign investment inflows; and a structurally weaker dollar index.

If these conditions persist, the yuan could appreciate to between 6.7 and 6.85 in 2026, a 2-4% gain from current levels around 6.96.

Three critical investment insights for the yuan: policy, economy, and exchange rate trends

The ultimate goal of understanding the yuan’s outlook is to help investors make smarter decisions. Instead of passively waiting, it’s better to learn how to actively judge the trend. Here are three core dimensions:

Dimension 1: Central bank’s monetary policy stance

The yuan is not a fully freely floating currency. The PBOC influences its exchange rate through tools like interest rate adjustments and reserve requirements. When the central bank adopts easing policies (rate cuts or reserve reductions), liquidity increases, often leading to yuan depreciation expectations; tightening policies tend to support yuan appreciation.

For example, in 2014, the PBOC began a easing cycle, cutting loan rates six times and lowering reserve requirements significantly. During this period, USD/CNY rose from about 6 to nearly 7.4, appreciating over 20%. This illustrates the profound impact of policy on the yuan.

Dimension 2: China’s economic data relative performance

China’s economic health directly influences foreign capital flows. When China’s growth outperforms other emerging markets, it attracts sustained foreign investment, boosting the yuan. Conversely, economic weakness leads to outflows and depreciation.

Key data to watch include: GDP growth (quarterly releases), PMI indices (official and Caixin, monthly), CPI (inflation, monthly), and fixed asset investment (monthly). These indicators reflect macroeconomic stability and momentum.

Dimension 3: The yuan’s midpoint rate and official signals

The PBOC sets a daily midpoint rate, reflecting official policy stance. Since 2017, the PBOC has incorporated a “counter-cyclicality” factor into its pricing model to mitigate procyclical behavior.

Monitoring the midpoint can reveal whether the authorities intend to support yuan appreciation or limit it. While short-term movements are influenced by the midpoint, the long-term trend still follows broader market fundamentals.

A five-year cycle perspective on the yuan’s future

To truly grasp the yuan’s outlook, it’s helpful to review the past five years’ full cycle, showing how the currency has fluctuated amid external pressures and internal adjustments.

2020: a dramatic turning point

Early 2020, USD/CNY hovered between 6.9 and 7.0, but amid US-China tensions and the pandemic, it briefly dipped to 7.18 in May. China quickly contained the virus, leading to economic recovery, while the Fed cut rates to near zero. These factors supported a strong rebound, ending the year at around 6.50, a 6% appreciation.

2021: relative stability

China’s exports remained strong, and the economy improved. The Fed maintained a dovish stance, and the dollar index stayed low. USD/CNY fluctuated narrowly between 6.35 and 6.58, averaging about 6.45, maintaining relative strength.

2022: sharp depreciation

This was the most volatile year. The Fed aggressively raised rates, pushing the dollar index above 100. USD/CNY rose from 6.35 to over 7.25, a roughly 8% decline, the largest in recent years. Meanwhile, strict COVID policies and a property crisis eroded confidence.

2023: continued pressure

USD/CNY ranged from 6.83 to 7.35, averaging around 7.0, ending near 7.1. China’s economic recovery was weaker than expected, and the property sector remained troubled. US rates stayed high, keeping the dollar strong.

2024: initial recovery

The dollar weakened, easing pressure on the yuan. China introduced fiscal stimulus and support measures, boosting confidence. USD/CNY rose from 7.1 to about 7.3 mid-year, with offshore yuan breaking below 7.10 in August, a new high for the year. Volatility increased, but the trend showed signs of divergence.

2025: cycle turning point

Early in the year, USD/CNY was around 7.3, but in the second half, as US-China negotiations advanced and the dollar index declined, the yuan appreciated rapidly, breaking below 7.0 at year-end—the largest gain in nearly three years. This shift was the result of multiple forces working together.

Three key investment points for the 2026 yuan outlook

For investors aiming to capitalize on the yuan’s future, these three variables are crucial:

1. The downward potential of the dollar index

When will the dollar bottom? Will the Fed’s rate cuts in 2026 reach 2-3 as expected? These determine whether the dollar can weaken further, clearing the way for yuan appreciation. If the dollar index drops below 96, it would strongly support yuan gains.

2. The PBOC’s stance around 6.9

Will the PBOC intervene via the midpoint rate or other measures to prevent rapid yuan appreciation? If the central bank aims to keep the exchange rate stable, it might set a new “defense line” around 6.8–6.9. This will influence whether the yuan can reach the 6.7–6.85 predicted by banks.

3. The effectiveness of China’s growth stabilization policies

Will China’s policies in 2026 truly boost domestic demand and the stock market? This determines whether the yuan’s long-term appreciation is well-founded. If policies are superficial and the economy remains sluggish, the yuan’s rise may lack real support.

Overall assessment of the yuan’s outlook

In summary, the yuan’s outlook is cautiously optimistic but not without risks. It has ended its three-year depreciation cycle and shows signs of a new appreciation phase. Under a weak dollar, stable US-China relations, and supportive policies, the yuan could rise to 6.7–6.85 in 2026—a 2-4% increase from current levels.

However, investors should remain aware of uncertainties: potential setbacks in US-China relations, the pace of China’s economic recovery, and unexpected shifts in Fed policy. Given these variables, a cautious yet optimistic approach is advisable.

Those seeking to profit from yuan appreciation should avoid excessive leverage, gradually build positions near 6.9–7.0, and consider taking profits around 6.85. Continuous monitoring of the dollar index, PBOC policies, and US-China relations is essential to adapt strategies accordingly.

The 2026 outlook for the yuan is unfolding—timing, risk awareness, and trend recognition are key.