## Is the Renminbi brewing a big move? How to interpret the exchange rate trend before the end of 2025

Since 2025, the trend of the Renminbi exchange rate has been full of twists and turns. After three consecutive years of decline, the Renminbi is now quietly reversing its downward trend.

At the beginning of the year, the USD to RMB exchange rate fluctuated between **7.04 and 7.3**. By mid-December, the RMB against the USD strengthened sharply, breaking through 7.05, and the rally continued, reaching 7.0404, **the highest in nearly 14 months**. In the offshore market, USD to offshore RMB fluctuated between 7.02 and 7.4, reacting more sensitively to international factors, with a cumulative appreciation of about 3% for the year.

What exactly has happened behind this?

## The three main forces supporting RMB appreciation

**First, US-China relations began to ease**

In the first half of the year, global tariff uncertainties increased, and the US dollar index continued to strengthen, with offshore RMB once falling below 7.40. At that time, market expectations of RMB depreciation significantly increased.

However, in the second half, US-China trade negotiations steadily advanced, with signals of easing. In the latest round of negotiations in Kuala Lumpur, the US reduced tariffs on fentanyl-related Chinese goods from 20% to 10%, and suspended the 24% additional tariffs until November 2026. The two countries also agreed to temporarily halt rare earth export controls and expand US agricultural purchases. This improvement in atmosphere directly boosted market confidence.

**Second, the US dollar index began to weaken**

In the first half, the dollar index fell from 109 at the start of the year to about 98, a decline of nearly 10%, marking the weakest first half since the 1970s. Although it briefly rebounded in November due to expectations of Fed rate cuts easing, after the Fed's rate cut was implemented in December, the dollar index fell again, **bottoming at 97.869**, returning to the 97.8-98.5 range.

**RMB and the US dollar index usually move inversely**, so a weaker dollar naturally supports RMB.

**Third, foreign capital began reallocating RMB assets**

As China's steady growth policies gradually take effect and economic expectations improve, foreign interest in RMB assets rekindles. This long-term allocation demand provides a solid buying foundation for RMB.

## Will the RMB continue to rise in the future? What do investment banks think

International investment banks are generally optimistic about the RMB outlook, believing that RMB is starting a mid-to-long-term appreciation cycle.

**Deutsche Bank** pointed out that the strengthening of RMB against the USD may signal the start of a long-term appreciation cycle. The bank forecasts the RMB to USD exchange rate will rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026.

**Goldman Sachs**, in a May report, made a more aggressive prediction. Goldman Sachs raised its forecast for the next 12 months of USD to RMB from 7.35 to 7.0, believing that the "breaking 7" point for RMB could come sooner than market expectations. The logic is that the current real effective exchange rate of RMB is **undervalued by 12%** compared to the ten-year average, with an undervaluation against the USD of **15%**. Based on progress in US-China trade negotiations and the current undervaluation of RMB, it is expected that the USD to RMB rate will rise to 7.0 within 12 months.

Goldman Sachs also pointed out that China's strong export performance will continue to support RMB, while the Chinese government is more likely to use other policy tools to boost the economy rather than resorting to currency devaluation.

## But beware of these three variables

In the short term, RMB is expected to maintain a relatively strong stance, fluctuating within a limited range with inverse movement to the USD. The rapid appreciation into the 7.0 range before the end of 2025 is less likely.

Investors should focus on **three major variables**:

**Variable 1: USD index trend**

The fluctuation of the USD index directly affects the rise and fall of USD to RMB. The Federal Reserve's monetary policy is key. If inflation remains above target, the Fed may slow down rate cuts, supporting the dollar; conversely, if the economy slows significantly, accelerated rate cuts could weaken the dollar.

**Variable 2: Signals from RMB midpoint rate adjustments**

Unlike freely convertible currencies, RMB is guided by the official midpoint rate through a quoting mechanism. Since 2017, the People's Bank of China has adjusted the midpoint model to "closing price + a basket of currencies exchange rate change + counter-cyclical factor," strengthening guidance over the exchange rate. Monitoring official midpoint rate signals can help anticipate policy intentions.

**Variable 3: The strength and pace of China's steady growth policies**

Easing monetary policy (such as rate cuts and reserve requirement ratio reductions) usually puts downward pressure on RMB. But if easing is combined with strong fiscal stimulus that stabilizes the economy, it will support RMB in the long run. Additionally, economic data like exports, GDP growth, and PMI will influence foreign capital inflows and thus RMB demand.

## How should you judge the RMB's future?

Rather than passively waiting, it’s better to actively learn to understand the logic behind RMB exchange rate movements.

**First, observe the central bank’s monetary policy direction**

Easing monetary policy (rate cuts, reserve ratio reductions) → RMB under pressure and weakening
Tightening monetary policy (rate hikes, reserve ratio hikes) → RMB strengthening

Historical example: In November 2014, the PBOC began a easing cycle, lowering loan rates six times in a row and significantly reducing reserve requirements. During this period, USD to RMB rose from 6 to nearly 7.4, demonstrating the profound impact of monetary policy on the exchange rate.

**Second, watch China's economic data**

Stable economic growth and outperforming other emerging markets → continuous foreign capital inflows → increased RMB demand → RMB appreciation

Key economic indicators include:
- **GDP** (quarterly release): reflects macroeconomic conditions
- **PMI** (monthly release): official PMI emphasizes large and medium-sized enterprises, Caixin PMI focuses on small and micro enterprises
- **CPI** (monthly release): measures inflation, influences monetary policy expectations
- **Urban fixed asset investment** (monthly release): reflects investment activity

**Third, monitor the USD index trend**

The USD index is highly correlated with USD to RMB exchange rate. In early 2017, the Eurozone economy recovered strongly, with GDP growth surpassing the US, and the European Central Bank signaled future tightening, boosting the euro. Meanwhile, after the USD index broke above 100, it showed fatigue and fell 15% over the year. During the same period, USD to RMB also declined, confirming their positive correlation.

**Fourth, observe official exchange rate signals**

The RMB midpoint rate is an important indicator of official exchange rate direction. By observing the adjustment direction and magnitude of the midpoint, one can anticipate official policy intentions. This has a significant short-term impact on exchange rate fluctuations, but the medium-to-long-term trend is still determined by the overall market.

## Review of RMB exchange rate trends over the past 5 years

**2020**: Started the year oscillating between 6.9-7.0, due to COVID-19 and US-China trade tensions, briefly depreciated to 7.18. But as China quickly controlled the pandemic and led economic recovery, coupled with Fed rate cuts to near zero and China's steady policies, it rebounded strongly to around 6.50 by year-end, appreciating about 6% for the year.

**2021**: Strong exports, economic improvement, steady monetary policy, and low US dollar index kept USD to RMB in a narrow range of 6.35-6.58, averaging about 6.45, maintaining relative strength.

**2022**: Aggressive Fed rate hikes and soaring dollar index, coupled with strict pandemic controls and a worsening real estate crisis in China, pushed USD to RMB above 7.25, depreciating about 8%, the largest decline in recent years.

**2023**: Economic recovery fell short of expectations, ongoing real estate debt crisis, and high US interest rates kept USD to RMB fluctuating between 6.83-7.35, averaging about 7.0, ending around 7.1.

**2024**: Weakening dollar, Chinese fiscal stimulus, and support for the real estate sector boosted the market, with USD to RMB rising from 7.1 to about 7.3 mid-year. Offshore RMB broke 7.10 in August, hitting a six-month high.

## Final advice

As China enters a sustained easing cycle of monetary policy, **USD to RMB (USDCNH) is showing a clear trend pattern**. Similar policy-driven cycles in history can last up to ten years. As long as investors grasp the key factors influencing RMB trends—central bank policies, economic data, dollar movements, and official exchange rate signals—they can greatly improve profit chances.

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