Will the USD to RMB exchange rate appreciate or depreciate in 2026? Predictions and analyses from multiple investment banks

Since 2025, the trend of the USD to CNY exchange rate has broken the previous three years of continuous depreciation, showing a pattern of oscillation and rebound. The full-year appreciation was 2.40%, with the offshore market gaining even more, reaching 2.80%, reflecting divergent market expectations for the renminbi.

Notably, at the end of November, driven by factors such as marginal improvement in US-China trade relations and rising expectations of Fed rate cuts, the USD to CNY exchange rate temporarily fell below 7.08, touching a low of 7.0765 for the year, creating the strongest renminbi performance in nearly a year.

A Historical Review of the USD to CNY Exchange Rate

Looking at data from the past five years, the USD to CNY exchange rate has experienced clear cyclical changes:

2020-2021: Appreciation Cycle
During the early pandemic, USD/CNY fluctuated around 7. As China led the pandemic control and economic recovery, coupled with aggressive Fed rate cuts, the renminbi gained support, appreciating to around 6.50 for the year, with an increase of about 6%. In 2021, strong exports and economic recovery kept the exchange rate in a narrow range of 6.35-6.58, with an average around 6.45.

2022-2024: Depreciation Cycle
2022 marked a turning point. Aggressive Fed rate hikes caused the dollar index to soar, while China’s economic growth slowed and a real estate crisis worsened. USD/CNY surged from 6.35 to above 7.25, depreciating about 8% for the year, the largest decline in recent years. In 2023, the rate fluctuated between 6.83 and 7.35, with an average around 7.0. In the second half of 2024, the dollar weakened, and China’s stimulus policies boosted the economy, with the exchange rate oscillating between 7.1 and 7.3.

Three Major Drivers of the Current Exchange Rate Trend

Easing US-China Trade Tensions
In the first half of the year, global tariff uncertainties increased, and offshore RMB temporarily broke below 7.40, hitting a new low since the 2015 exchange rate reform. In the second half, steady progress in US-China negotiations and signs of easing tensions became a key support for the renminbi rebound.

Structural Weakening of the US Dollar Index
In the first five months, the dollar index fell sharply by 9%, marking the worst start to a year on record. Market expectations of a prolonged Fed rate cut cycle supported the view that the dollar would weaken further, benefiting non-US currencies including the renminbi.

Undervaluation of the Renminbi
Several international investment banks pointed out that the real effective exchange rate (REER) of the renminbi is undervalued by about 12% relative to its ten-year average, with an even higher undervaluation of around 15% against the dollar. This provides ample room for the renminbi to appreciate.

Investment Banks’ Forecasts for USD to CNY

Market consensus is gradually leaning toward renminbi appreciation:

Deutsche Bank believes that a strengthening renminbi against the dollar could signal the start of a long-term appreciation cycle. The bank estimates that USD/CNY will rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026.

Morgan Stanley expects a moderate appreciation of the renminbi, with the dollar continuing to weaken over the next two years. The firm forecasts that by 2026, the dollar index could fall back to 89, with USD/CNY potentially reaching around 7.05.

Goldman Sachs holds the most optimistic view. Its global FX strategy head, in a May report, significantly raised the USD/CNY forecast for the next 12 months from 7.35 to 7.0, and predicted that the “breaking 7” point for the renminbi could arrive sooner than market expectations. Goldman’s logic is that the renminbi is currently significantly undervalued, supported by strong export performance, and that the Chinese government prefers using fiscal and other policy tools rather than currency devaluation to address challenges.

Medium- and Long-Term Variables Affecting USD to CNY

Federal Reserve Policy Direction
The Fed’s rate hike or cut decisions directly influence dollar strength. If inflation remains above target, the Fed may slow rate cuts, supporting the dollar. Conversely, a clear economic slowdown and accelerated rate cuts will weaken the dollar and push the renminbi higher.

PBOC Monetary Policy Orientation
The People’s Bank of China tends to maintain an accommodative stance to support economic recovery, especially amid weak real estate and insufficient domestic demand. Rate cuts or reserve requirement ratio reductions usually exert short-term downward pressure on the renminbi, but if easing policies and fiscal stimulus stabilize the economy, the renminbi will be supported in the long run.

US-China Trade Negotiation Progress
Although recent talks in London saw a handshake, the durability of this truce remains uncertain. If future negotiations ease tariffs, the renminbi will be supported; if tensions escalate, depreciation pressure will persist. This is a key variable influencing USD/CNY.

China’s Economic Data
Indicators such as GDP, PMI, CPI directly reflect China’s economic health. Stable growth attracts sustained foreign investment, increasing demand for the renminbi; slowing growth may lead foreign capital to shift elsewhere.

Renminbi Internationalization
The increasing use of the renminbi in global trade settlement and currency swap agreements with other countries could support RMB stability over the long term. However, in the short term, the dollar’s status as the main reserve currency remains difficult to challenge.

How Investors Can Assess USD to CNY Trends

For ordinary investors, key to understanding exchange rate movements is monitoring:

Official Exchange Rate Policy Signals
Since 2017, the RMB/USD midpoint quoting mechanism has incorporated a “countercyclical factor,” strengthening official guidance. Investors should pay attention to the central bank’s attitude toward the RMB exchange rate, which often signals short- to medium-term trends.

Macroeconomic Data Releases
Economic indicators such as PMI, fixed asset investment, and CPI are transparent and publicly available, providing clear insights into economic conditions and influencing exchange rate expectations.

USD Index Movements
The dollar’s trend is highly correlated with USD/CNY. Monitoring Fed minutes, US economic data, and Treasury yields helps anticipate dollar strength or weakness.

Cross-Border Capital Flows
Foreign capital inflows and outflows reflect expectations for RMB assets. Persistent net inflows of northbound funds often indicate RMB appreciation prospects.

Outlook for 2026 USD to CNY Exchange Rate

Based on comprehensive analysis, the market generally believes that the RMB exchange rate may be at a cyclical turning point. The depreciation cycle that began in 2022 may have ended, and the RMB is expected to enter a new phase of medium- to long-term appreciation.

Looking ahead to late 2025 and 2026, three main factors are likely to support a stronger exchange rate: sustained resilience in China’s exports; a gradual reallocation of foreign investment into RMB assets; and a structurally weaker dollar index.

However, it’s important to note that the USD/CNY rate is unlikely to rapidly fall below 7.0 in the short term. Market focus should remain on the dollar index trend, RMB midpoint policy signals, and the intensity and pace of China’s growth stabilization policies—these are the key variables.

Overall, the foreign exchange market is driven mainly by macro factors. Data releases are transparent, and the large volume of FX trading allows for two-way trading, making the market relatively fair and advantageous for investors. By grasping the key factors influencing the renminbi’s movement, investors can significantly improve their judgment accuracy.