## Renminbi Appreciation Cycle Initiated? The USD to RMB Exchange Rate Still Has a Chance to Break 7 in the Second Half of 2025

Recently, the performance of the renminbi has been impressive. Driven by the Federal Reserve's easing cycle and the easing of US-China trade relations, the USD to RMB exchange rate has fallen from the high of 7.40 at the beginning of the year to around 7.0404, hitting a new 14-month high. What exactly has happened behind this? Is the renminbi still worth buying now?

## The "Big Reversal" of the Renminbi: From Depreciation to Appreciation

To understand the current exchange rate trend, we need to look back at the story of the past three years. From 2022 to 2024, the renminbi experienced three consecutive years of depreciation, with the USD to RMB rate once breaking through 7.40, setting a new record since the 2015 "8.11 Reform." But in 2025, the situation has reversed.

For the whole year, the USD to RMB fluctuated between 7.04 and 7.3, appreciating by about 3%. The offshore RMB (CNH) experienced even greater volatility, oscillating between 7.02 and 7.4, reflecting changing market expectations for the renminbi internationally. Since mid-December, with the Fed's rate cuts taking effect, the RMB exchange rate has broken through the 7.05 threshold strongly, heading below 7.0.

## Why Did the Renminbi Suddenly Turn to Appreciation?

### US-China Relations Easing Is Key

In the first half of this year, global tariff uncertainties were high, the US dollar index strengthened, and the renminbi was under obvious pressure. But in the second half, progress was made in US-China trade negotiations. In the latest round of Kuala Lumpur talks, the US reduced tariffs on Chinese goods from 20% to 10%, and suspended the 24% retaliatory tariffs until 2026. This "trade truce" significantly eased market expectations of RMB depreciation.

However, it should be noted that a similar truce was reached in May this year but quickly fell apart. So whether this can be maintained long-term remains the biggest variable in RMB trend judgment.

### US Dollar Index Shifting from Strength to Weakness

In the first half of 2025, the US dollar index dropped sharply from 109 at the start of the year to 98, a nearly 10% decline. Although it rebounded above 100 in November, after the rate cut cycle began in December, the dollar index fell back to the 97.8-98.5 range. Mild dollar strength puts pressure on the RMB, but currently, this pressure is offset by the positive impact of the US-China agreement, forming a relatively balanced pattern.

### Accelerated Internationalization of the Renminbi

The use of RMB in global trade settlement continues to increase, and currency swap agreements between China and other countries are expanding. Although in the short term, the US dollar's reserve currency status is hard to shake, in the long term, the rising international status of the RMB lays a foundation for its stable appreciation.

## How Do International Investment Banks View the Renminbi Outlook?

Many top investment banks are optimistic about RMB appreciation. Deutsche Bank believes that the RMB is starting a long-term appreciation cycle, expecting it to reach 7.0 by the end of 2025 and further appreciate to 6.7 by the end of 2026.

Goldman Sachs' global FX strategy head pointed out in a report that the real effective exchange rate of RMB against USD is undervalued by 12% compared to the ten-year average, with an even greater undervaluation of 15% against the dollar. Based on this logic, Goldman Sachs expects the RMB to appreciate to 7.0 against USD in the next 12 months. At the same time, Goldman Sachs believes that China's strong export performance will support the RMB, and the Chinese government is more inclined to use other policy tools to stimulate the economy rather than relying on currency depreciation.

## Who Are Influencing the RMB Trend? Four Core Factors

### 1. Central Bank's Monetary Policy Signals

The People's Bank of China currently favors a loose monetary policy to support economic recovery, especially amid a sluggish real estate market. Lowering interest rates or reserve requirements will increase money supply, which theoretically puts downward pressure on the RMB. But if loose policies are combined with strong fiscal stimulus and the economy stabilizes and rebounds, it could actually boost the RMB in the long run.

### 2. China's Economic Data Performance

When China's economy remains stable and outperforms other emerging markets, it attracts continuous foreign investment inflows, increasing demand for RMB. Currently, China's resilient exports are a key factor supporting RMB appreciation. Key economic indicators like GDP, PMI, and CPI should be closely watched, as they influence foreign investment decisions.

### 3. Federal Reserve's Policy Direction

The Fed's pace of rate cuts directly impacts the dollar's trend. If inflation remains above target, the Fed may slow down rate cuts or maintain high interest rates, supporting the dollar. Conversely, economic slowdown could accelerate rate cuts, weakening the dollar. The inverse relationship between RMB and USD index is crucial in exchange rate analysis.

### 4. Official Guidance on the Exchange Rate

Unlike fully market-driven currencies, the RMB's central parity mechanism incorporates a "counter-cyclical factor," strengthening the central bank's guidance of the exchange rate. Recent observations show that official orientation has a significant short-term impact on the exchange rate, but medium- and long-term trends are still determined by fundamental market conditions.

## How Has the RMB Been Moving in History? A Complete Review of the Past Five Years

**2020:** During the pandemic, the RMB appreciated significantly, with USD to RMB falling from around 6.9-7.0 at the start of the year to about 6.50 by year-end, a roughly 6% appreciation.

**2021:** Strong Chinese exports, stable central bank policies, and a low USD index kept USD to RMB fluctuating narrowly between 6.35 and 6.58, maintaining relative strength.

**2022:** The Fed's aggressive rate hikes pushed the USD index higher, while China's pandemic policies and real estate crisis weighed on the economy. RMB depreciated about 8%, reaching above 7.25, the largest decline in recent years.

**2023:** Economic recovery was below expectations, and the ongoing real estate debt crisis caused RMB to fluctuate between 6.83 and 7.35, ending the year around 7.1.

**2024:** The weakening dollar and China's fiscal stimulus boosted confidence, with USD to RMB volatility increasing, moving from 7.1 at the start of the year to around 7.3 mid-year.

## Is It Worth Buying RMB Now? How Should Investors Act?

In the short term, the RMB is expected to remain relatively strong but will fluctuate within a limited range, moving inversely with the dollar. The probability of rapid appreciation into the 7.0 range before the end of 2025 is low.

Investors should focus on three key variables: **USD index trend**, **RMB central parity signals**, and **China's stabilization and growth policies' strength and pace**. Significant changes in these factors could lead to rapid exchange rate adjustments.

## How to Independently Judge the Future of the RMB?

To independently assess the RMB exchange rate, you don't need complex models—just focus on four logical points:

**Monitor monetary policy stance:** Rate cuts or reserve requirement reductions usually lead to depreciation; rate hikes or reserve increases tend to cause appreciation. Historically, when China adopted easing policies starting in 2014, USD to RMB rose from 6 to nearly 7.4.

**Watch economic data:** Good economic performance attracts foreign capital inflows, increasing RMB demand; poor data has the opposite effect. GDP, PMI, and CPI are the three most important indicators.

**Observe dollar strength:** A strong dollar usually depresses RMB, while a weak dollar favors RMB appreciation. The Fed's policy signals are critical.

**Follow official stance:** The central bank's setting of the midpoint and foreign exchange interventions can influence short-term expectations. Close monitoring is necessary.

## The Unique Role of Offshore RMB (CNH)

Because offshore RMB markets in Hong Kong, Singapore, and other free markets are less restricted by capital controls, CNH tends to be more volatile than onshore CNY. Despite multiple fluctuations in 2025, CNH overall shows a oscillating upward trend. Early in the year, tariffs pushed it below 7.36, but recent easing of US-China tensions and expectations of rate cuts have pushed it past 7.05 in December, rebounding over 4% from the year's high, reaching a 13-month high.

The volatility of CNH makes it more suitable for short-term trading opportunities but also requires higher risk management awareness.

## Summary: Seizing Opportunities in the RMB Appreciation Cycle

As China enters a sustained easing cycle of monetary policy, the RMB is showing a clear trend. Historically, similar cycles can last up to ten years, with short- and medium-term fluctuations driven by USD movements and other events.

For investors, understanding and monitoring the four core factors—monetary policy, economic data, USD trend, and official guidance—can significantly improve the chances of capturing RMB trading opportunities. The forex market is primarily driven by macro fundamentals, with transparent data, large trading volumes, and support for two-way trading, making it a relatively fair and advantageous investment field.