Interpreting the 2026 RMB exchange rate forecast and seizing new investment opportunities

In 2025, the Chinese yuan (Renminbi) experienced a breakthrough rally against the US dollar. Driven by policy support and the reallocation of foreign investment, the RMB exchange rate trend has gradually become a market focus. Especially in the second half of the year, the RMB appreciated to below 7.08 against the dollar, even briefly reaching 7.0765, hitting a new high in nearly a year and reversing earlier downward momentum. This change not only reflects the improvement in China-US relations and the rising expectations of Fed rate cuts but also signals that the RMB may enter a new appreciation cycle.

Consensus on RMB Exchange Rate Forecasts from Multiple Investment Banks

Currently, international investment banks share a relatively consistent view on the future trend of the RMB — the depreciation cycle has ended, and the appreciation era has officially begun.

Deutsche Bank analysis indicates that the recent strength of the RMB against the dollar may signal the start of a long-term appreciation cycle. The bank forecasts the USD/RMB exchange rate could further rise to 6.7 in 2026, reflecting optimism about China’s economic outlook.

Morgan Stanley also expects a moderate appreciation of the RMB, believing the US dollar will continue to weaken in the current cycle. They predict the dollar index could fall back to around 89, with the USD/RMB exchange rate possibly reaching about 7.05.

Goldman Sachs’s forecast is the most aggressive. In a report released in May, Goldman Sachs’ global FX strategist Kamakshya Trivedi significantly raised the USD/RMB forecast for the next 12 months to 7.0. Goldman Sachs believes the current real effective exchange rate of the RMB is undervalued by 12% compared to the 10-year average, with an even greater undervaluation of 15% against the dollar. Based on progress in China-US trade negotiations and the current undervaluation, the RMB could appreciate to 7.0. Additionally, Goldman Sachs states that strong Chinese exports will support the RMB, and the Chinese government is more likely to use other policy tools to boost the economy rather than devalue the currency.

Current Situation: From Volatility to Stability

Throughout 2025, the RMB exchange rate demonstrated significant resilience and recovery ability. The USD/RMB fluctuated between 7.1 and 7.3, appreciating a total of 2.40% for the year; offshore RMB traded between 7.1 and 7.4, with a total appreciation of 2.80%. Behind this oscillation lies the complex interaction between China-US relations and global liquidity.

First Half of the Year: The RMB faced considerable pressure early on. Uncertainty in global tariffs, a strong dollar index, and other factors drove offshore RMB below 7.40, with USD/RMB reaching its highest since 2022 and even setting a new record since the 2015 “8.11” reform.

Second Half of the Year: The trend reversed. Progress in China-US trade negotiations, signs of easing relations, and a weakening dollar index contributed to RMB stabilization and gradual appreciation. Amid a general strengthening of major non-US currencies like the euro and pound, the RMB also appreciated modestly against the dollar, with market sentiment stabilizing.

Understanding the Drivers and Cycles of RMB Exchange Rate

Key Signals of Cycle Turning

The market generally believes that the RMB is at a turning point. The four-year depreciation cycle appears to be bottoming out, opening the possibility for a new medium- to long-term appreciation trend. This shift is supported by three main factors:

1. Resilient Chinese export growth providing foreign exchange income support
2. Re-establishment of foreign investment reallocation into RMB assets, boosting demand
3. The structural weakness of the US dollar index easing RMB appreciation pressure

Tracking Key Drivers

To understand RMB exchange rate forecasts, focus on four core variables:

US Dollar Index (DXY): In the first five months of 2025, the dollar index fell sharply by 9%, marking the worst start to a year on record. Many market participants expect the Fed’s rate cut cycle to lower short-term interest rates, which could lead to further dollar depreciation, supporting Asian currencies including the RMB.

China-US Negotiations: Although there has been a thaw, the durability of the truce remains uncertain. Tariff tensions continue to be a key factor influencing USD/RMB. If negotiations ease tensions, the RMB may find support; if tensions escalate, depreciation pressures will persist.

Fed Monetary Policy: The Fed’s policy stance is crucial. If inflation remains above target, the Fed may slow or halt rate cuts, supporting the dollar; if not, the dollar could weaken. Generally, the RMB tends to move inversely to the dollar index.

China’s Monetary Policy Tone: China favors a loose monetary stance to support economic recovery. The People’s Bank of China (PBOC) may cut interest rates or reserve requirements to inject liquidity, which could exert short-term downward pressure on the RMB. However, in the long run, if loose monetary policy is combined with stronger fiscal stimulus and economic stabilization, the RMB could appreciate.

Historical Perspective: RMB Cycle Evolution

2020’s Contrarian Appreciation

At the start of 2020, USD/RMB traded between 6.9 and 7.0. Amid US-China trade tensions and the pandemic, the RMB depreciated to 7.18 in May. But as China quickly controlled the pandemic and led a faster economic recovery, coupled with the Fed’s near-zero rates and China’s stable monetary policy, the RMB rebounded strongly to around 6.50 by year-end, appreciating about 6% for the year.

2021’s Stable Strength

This year saw sustained strong exports and economic growth. The PBOC maintained a prudent stance, and the dollar index remained low. USD/RMB traded narrowly between 6.35 and 6.58, averaging about 6.45, maintaining relative strength.

2022’s Sharp Depreciation

2022 marked a turning point. USD/RMB rose from 6.35 to over 7.25, with an approximately 8% depreciation, the largest in recent years. The reasons include aggressive Fed rate hikes, soaring dollar index, China’s strict pandemic controls dragging on the economy, and a worsening property crisis.

2023–2024’s Pressure and Rebound

In 2023, USD/RMB fluctuated between 6.83 and 7.35, ending near 7.1. In 2024, despite a weakening dollar easing RMB pressure and fiscal stimulus boosting confidence, the pair still rose from 7.1 to about 7.3, with increased volatility.

The pattern over these five years is clear: policy coordination and economic performance determine medium-term trends, while the dollar index and risk sentiment drive short-term fluctuations.

Recognizing RMB Trends and Formulating Investment Strategies

Three Dimensions of Investment Logic

To forecast RMB exchange rate movements, investors should consider three key aspects:

1. China’s Monetary Policy Transmission

The PBOC’s monetary stance directly influences liquidity and, consequently, the exchange rate. Loose policy (rate cuts or reserve requirement reductions) tends to weaken the RMB; tightening (rate hikes or reserve increases) supports RMB appreciation.

For example, since November 2014, the PBOC adopted a loose monetary policy, cutting loan rates six times and lowering reserve requirements repeatedly. During this period, USD/RMB rose toward nearly 7.4, illustrating the significant impact of monetary policy on the exchange rate.

2. Real Economic Data

Economic indicators reflect the true health of the economy and influence RMB strength. Stable or outperforming economic growth attracts foreign investment, increasing RMB demand and appreciation. Conversely, economic weakness exerts downward pressure.

Key indicators include:

• GDP: Released quarterly, a primary macroeconomic indicator
• PMI: Official and Caixin indices, monthly, reflecting manufacturing sector health
• CPI: Inflation measure, indicating economic heat
• Urban Fixed Asset Investment: Monthly data showing investment trends

3. Official Guidance on Exchange Rate Direction

Since 1978, China’s RMB has undergone multiple exchange rate reforms. The latest adjustment was on May 26, 2017, which introduced a new central parity setting model based on a basket of currencies, with a “countercyclical factor” to guide the market. While this influences short-term fluctuations, the long-term trend depends on broader monetary and economic fundamentals.

Practical Investment Advice

Currently, investing in RMB-related currency pairs can be profitable, especially with short-term appreciation expectations. The RMB is likely to remain relatively strong in the near term, moving inversely to the dollar within a limited range. However, a rapid appreciation below 7.0 before the end of 2026 is less probable.

Investors should closely monitor three key uncertainties:

• The dollar index trend
• Central bank’s midpoint rate adjustments
• China’s growth stabilization policies and their pace

Investment Tools and Channels

Investors can participate through various channels:

Commercial and International Banks: Opening foreign exchange accounts for trading and investment.

Forex Brokers: Many allow margin trading with both long and short positions, enabling profit from both rising and falling prices. Leverage can amplify gains but also increases risk; prudent risk management is essential.

Securities Firms and Futures Exchanges: Some offer forex trading services; futures markets also provide opportunities for currency speculation.

Summary

As China enters a sustained easing cycle in monetary policy, the RMB exchange rate outlook shows a clear trend. Historical cycles suggest this could last a decade, with short- to medium-term fluctuations influenced by US dollar movements and global events. By understanding and monitoring the key factors outlined above, investors can significantly improve their chances of profiting from RMB exchange rate movements.

The forex market is driven mainly by macroeconomic factors, with transparent data releases worldwide. The large trading volume and support for two-way trading make it a relatively fair and advantageous investment space for individual investors. Focusing on the medium- to long-term cycle while remaining flexible to short-term volatility is the optimal approach.