## After the RMB Strengths Break 7: Is There Room for Appreciation by 2026?

At the end of December, the RMB against the US dollar hit a new high for the period, with offshore RMB (USD/CNH) briefly touching 6.9965, the lowest since September 2024. Onshore RMB (USD/CNY) also fell below the psychological level of 7.01 to 7.0051, marking the first time since May 2023 that this level has been reached. What exactly is driving this round of market movement?

**Triple Forces Driving the RMB Appreciation**

This appreciation is mainly driven by three overlapping factors. First, the weakening of the US dollar itself— the Federal Reserve's interest rate cut cycle continues, and the global trend of de-dollarization persists. The US dollar index has fallen over 10% this year, with a decline of more than 2% in the past month alone, creating conditions for the RMB to appreciate relatively. Second, the change in attitude of the People's Bank of China (PBOC) is noteworthy; in 2025, the central bank continued to raise the midpoint of the RMB exchange rate, signaling a clear intention to guide the RMB to appreciate as needed. The third factor is the seasonal phenomenon common at year-end—exporting companies accumulate trade surpluses and convert foreign exchange near year-end, increasing foreign exchange supply and pushing up the RMB.

Additionally, the cautious monetary policy stance of the PBOC (delaying further rate cuts) and liquidity tightness in the offshore market due to holiday effects have also contributed. Notably, the RMB has shown relatively stronger performance compared to other currencies such as the Japanese Yen and the Euro.

**How Undervalued Is It?**

Although the RMB has hit new lows, analysts generally believe that, based on trade-weighted indices and the domestic deflation background, the RMB still does not fully reflect its fundamentals. Goldman Sachs offers a more extreme assessment—estimating that the RMB is undervalued by about 25% relative to economic fundamentals, implying considerable room for appreciation.

Senior strategist Xing Zhaopeng of ANZ Bank holds a relatively conservative view, expecting the USD/CNY to remain within a narrow range of 6.95-7.00 in the first half of 2026. However, Goldman Sachs is more optimistic about the RMB, forecasting that the USD/CNY will further decline to 6.90 by mid-2026 and possibly fall to 6.85 by the end of the year. Bank of America takes an even more aggressive stance, expecting the USD/CNY to fall to 6.80 by the end of 2026, based on the improved US-China relations and the potential expansion of dollar selling by exporters.

**Underlying Logical Support**

Wang Qing, Chief Macro Analyst at Orient Securities, pointed out that the weakening of the US dollar combined with seasonal foreign exchange conversions by export companies has jointly pushed up the RMB. He further stated that the continued appreciation of the RMB would help enhance China's capital market attractiveness to international investors, potentially creating a virtuous cycle of self-reinforcement.

From a longer-term perspective, if the RMB appreciation trend continues, it will not only affect cross-rates such as USD/JPY but also reshape international investors' asset allocation choices.