The RMB to USD exchange rate has broken through the 7 mark! Will it continue to appreciate in 2026?

Investment Insights - The RMB/USD exchange rate has broken through the psychological barrier of 7 for the first time since September 2024, with the market betting that the People's Bank of China will gradually allow the RMB to appreciate. On December 25, the USD/CNH fell to 6.9965, hitting a new low since September 2024. The USD/CNY dropped to 7.0051, marking a new low since May 2023. [Source: TradingView; 2025 USD/CNH trend] Analysis indicates that the current appreciation of the RMB is mainly due to three reasons: first, the weakness of the USD; second, the People's Bank of China allowing the RMB to appreciate; and third, the year-end settlement effect. Against the backdrop of the Federal Reserve's interest rate cuts and the trend of de-dollarization, the USD index has fallen over 10% this year, with a decline of over 2% in the past month. The weakness of the USD is favorable for the appreciation of the RMB exchange rate. On the side of the People's Bank of China, it has continuously raised the RMB central parity rate (i.e., reference exchange rate) this year, guiding the RMB to appreciate continuously. [Source: China Foreign Exchange Trading Center; USD/RMB central parity rate] The year-end settlement effect is a driving force behind the RMB breaking 7. In 2025, China accumulated a huge trade surplus, and as the year-end approaches, enterprises are settling foreign exchange, leading to the appreciation of the RMB. Additionally, in terms of monetary policy, the People's Bank of China has not further cut interest rates, and the offshore liquidity has been relatively tight due to the holiday effect, which may also be factors contributing to the rise of the RMB. "The weakness of the USD and the seasonal foreign exchange conversion by exporters have driven the RMB stronger," said Wang Qing, chief macro analyst at Dongfang Jincheng. "The continuous appreciation of the RMB will help enhance the attractiveness of China's capital market to foreign investors." Will the RMB exchange rate continue to rise in 2026? Despite the strengthening of the RMB against the US dollar, many believe that the RMB is still undervalued when considering trade-weighted and China's deflation. Xing Zhaopeng, a senior strategist at ANZ Bank, stated that in the first half of 2026, the USD/RMB exchange rate may remain in the range of 6.95-7.00. Goldman Sachs indicated that the RMB is undervalued by 25% relative to economic fundamentals. They expect the USD/RMB exchange rate to drop to 6.90 by mid-2026 and to 6.85 by the end of 2026. Bank of America believes that the easing of US-China tensions has improved the outlook for exporters, and the scale of dollar selling by Chinese exporters will further expand in 2026. They anticipate that the USD/RMB exchange rate will fall to 6.80 by the end of 2026