How will the RMB and TWD trends evolve in 2026? Is it really appropriate to buy RMB assets at this stage?

Renminbi Enters Reversal Cycle: What Is the Outlook for Future Appreciation?

2025 can be considered the turning point for the Renminbi exchange rate. After depreciating against the US dollar for three consecutive years from 2022 to 2024, the Renminbi has finally reversed its downward trend. The USD/RMB exchange rate fluctuated between 7.04 and 7.3 throughout the year, appreciating by about 3% overall, a rare positive performance in recent years.

Most notably, on December 15, the RMB against the USD broke through the 7.05 level strongly, then continued to rise to 7.0404, hitting a new 14-month high. The offshore market performed even better, with USD/Offshore RMB fluctuating between 7.02 and 7.4, making it more susceptible to international factors compared to the onshore market.

This appreciation was not accidental. Although offshore RMB depreciated past 7.40 in the first half of the year due to global tariff uncertainties and a strong dollar, reaching a new low since the 2015 exchange rate reform, the second half saw a stabilization as US-China trade negotiations became more stable and the US dollar index weakened. The RMB finally gained some breathing room, and market sentiment improved accordingly.

Four Major Factors Determining the Future Direction of RMB and TWD

To forecast the future trend of the RMB, four key variables must be closely monitored:

1. Fluctuations in the US Dollar Index

In the first half of 2025, the USD index fell from 109 to 98, a decline of nearly 10%, marking the weakest first half since the 1970s. However, starting in November, sentiment shifted: expectations of Fed rate cuts cooled, and the US economy performed better than expected, causing the dollar index to rebound above 100 multiple times. In December, the Fed cut rates as scheduled, and with a dovish stance likely in the future, the dollar index fell again to a low of 97.869, returning to the 97.8-98.5 range.

Key point: A moderate strengthening of the dollar will exert pressure on the RMB, but currently, the positive effects from US-China agreements temporarily offset this negative impact.

2. The Delicate Balance of US-China Negotiations

Latest news from the Kuala Lumpur trade talks is positive—both sides reached a ceasefire agreement. The US will reduce tariffs on Chinese goods related to fentanyl from 20% to 10%, and the 24% tariff surcharge on reciprocal tariffs will be suspended until November 2026. Both sides also paused measures like rare earth export controls and port fees, and expanded US soybean purchases.

However, whether this peace agreement can be maintained long-term remains uncertain. A similar agreement reached in Geneva in May was quickly broken, so the stability of US-China relations remains the most important external factor influencing the RMB exchange rate. If the current situation persists, the RMB environment will stabilize; if friction re-emerges, the RMB will face renewed depreciation pressures.

3. The Policy Game Between the Fed and the People’s Bank of China

The Federal Reserve’s monetary policy directly impacts the dollar’s trend. The magnitude and pace of rate cuts in 2025 depend on inflation, employment, and policies of the Trump administration. High inflation may slow down rate cuts, supporting the dollar; economic slowdown may accelerate rate cuts, weakening the dollar. The RMB and the USD index usually move inversely.

The PBOC tends to adopt an easing policy to support economic recovery, especially amid weak real estate and insufficient domestic demand. Rate cuts or reserve requirement ratio reductions will release liquidity, putting short-term downward pressure on the RMB. However, if easing is combined with strong fiscal stimulus to stabilize the economy, the long-term outlook for the RMB will improve.

4. Long-term Support for RMB Internationalization

The increasing use of RMB in global trade settlements and currency swap agreements with other countries provide long-term support for RMB stability. However, in the short term, the US dollar’s status as the primary reserve currency remains difficult to challenge.

How Do International Investment Banks View the Future of the RMB?

The market generally believes that the RMB is at a cyclical turning point, with the depreciation cycle starting in 2022 already over, and the RMB is expected to enter a new medium-to-long-term appreciation trajectory.

Deutsche Bank analysts suggest that recent RMB strength may indicate the start of a long-term appreciation cycle. They forecast the USD/RMB exchange rate will rise to 7.0 by the end of 2025 and further to 6.7 by the end of 2026.

Goldman Sachs’ global FX strategist Kamakshya Trivedi released a report in mid-May that caused a stir in the investment community. Goldman unexpectedly raised its forecast for the next 12 months, expecting USD/RMB to move from 7.35 to 7.0, and predicted that the RMB would “break 7” sooner than the market anticipated.

Goldman’s logic is based on: The current real effective exchange rate of the RMB is undervalued by 12% relative to the ten-year average, with an even greater undervaluation of 15% against the dollar. Based on progress in US-China trade negotiations and the current undervaluation, the RMB is expected to appreciate to 7.0 against the dollar within 12 months. Goldman also notes that strong Chinese exports will support the RMB, and the Chinese government is more inclined to use other policy tools to boost the economy rather than pursue currency devaluation strategies.

Is Now a Good Time to Invest in RMB-Related Assets?

In simple terms: Yes, but timing is key.

In the short term, the RMB is expected to remain relatively strong, fluctuating inversely with the dollar within a range. The likelihood of rapid appreciation below 7.0 before the end of 2025 is low.

Focus should be on three major variables: USD index trends, signals from the RMB midpoint rate, and the strength and pace of China’s stabilizing growth policies. As long as there are no unexpected reversals in these areas, there will be opportunities to profit from RMB-related currency pairs.

How to Judge the Trend of RMB and TWD? Four Perspectives to Help You Spot the Pattern

Knowing the various factors, how can you find direction amid market changes? Here are four practical frameworks:

First: Monitor the People’s Bank of China’s monetary policy

Monetary policy tightening or easing directly affects money supply, which in turn influences exchange rates. Easing policies (rate cuts, reserve requirement reductions) are expected to increase supply, leading to RMB depreciation; tightening policies (rate hikes, reserve ratio increases) reduce liquidity, supporting RMB appreciation.

Since 2014, when the PBOC began a loosening cycle with six consecutive rate cuts and significant reserve requirement reductions, the USD/RMB rose from 6 to over 7.4, illustrating the profound impact of monetary policy on exchange rates.

Second: Watch China’s economic data

Stable economic growth attracts sustained foreign investment, increasing demand for RMB and supporting its strength; economic slowdown has the opposite effect.

Key data points include:

• GDP: Released quarterly, reflecting macroeconomic conditions
• PMI: Released monthly, with official and Caixin readings focusing on large and small enterprises respectively
• CPI: Monthly, indicating inflation levels; high inflation may trigger policy tightening
• Fixed Asset Investment: Monthly, reflecting economic activity intensity

Third: Follow USD index movements

The USD’s trend directly impacts USD/RMB. Federal Reserve and ECB policies are often key. For example, in 2017, the Eurozone’s stronger-than-expected recovery and ECB’s tightening signals led to a 15% decline in the USD index, and USD/RMB also declined, showing high correlation.

Fourth: Interpret official attitudes toward the exchange rate

Unlike freely floating currencies, the RMB has undergone multiple exchange rate management reforms. In May 2017, the central parity rate model incorporated an “inverse cycle factor,” strengthening official guidance. While this influences short-term rates, the medium- and long-term trend still depends on the overall currency market direction.

Five-Year Review: How Has the RMB and TWD Trend Evolved?

2020: Contrasting performance amid the pandemic

Early in the year, the exchange rate was between 6.9 and 7.0. Due to US-China trade tensions and COVID-19 impacts, it briefly depreciated to 7.18 in May. However, China quickly controlled the pandemic, leading to economic recovery, while the Fed cut rates to near zero. China maintained prudent policies, widening the interest rate differential, and the RMB rebounded strongly to 6.50 by year-end, appreciating about 6% for the year.

2021: A steady year with strong exports

China’s exports remained robust, and the economy improved. The central bank maintained prudent policies, and the USD index stayed low. USD/RMB fluctuated narrowly between 6.35 and 6.58, averaging around 6.45, maintaining relative strength.

2022: Heavy blow from Fed rate hikes

The exchange rate rose from 6.35 to over 7.25, depreciating about 8%, the largest decline in recent years. Aggressive Fed rate hikes, soaring USD index, strict COVID controls, and a real estate crisis dragged down the RMB amid multiple pressures.

2023: Underwhelming recovery and subdued performance

USD/RMB fluctuated between 6.83 and 7.35, averaging about 7.0, ending the year at 7.1. China’s post-pandemic recovery was weaker than expected, real estate debt persisted, and consumption remained sluggish. The US maintained high interest rates, putting pressure on the RMB again.

2024: A year of increased volatility and turning points

A weakening dollar eased RMB pressure, while fiscal stimulus and support for the property sector boosted confidence. The exchange rate rose from 7.1 to 7.3, with offshore RMB breaking above 7.10 to reach a six-month high, and overall volatility increased significantly.

Final Tip: Why Is Offshore RMB More Volatile?

Offshore RMB(CNH) is traded in international markets like Hong Kong and Singapore, with freer trading and capital flows less restricted, thus reflecting global market sentiment more intensely; onshore RMB(CNY) is subject to capital controls, with the PBOC guiding the rate through the midpoint and forex interventions, resulting in relatively milder fluctuations.

In 2025, the offshore RMB against the USD is expected to fluctuate upward in a volatile pattern. Early in the year, US tariffs and the USD index soaring to 109.85 caused CNH to depreciate past 7.36. The PBOC then took measures to stabilize the market—issuing 60 billion yuan in offshore bills to recover liquidity and controlling the midpoint rate.

Recently, as US-China dialogue eased, China’s stabilizing growth policies took effect, and Fed rate cut expectations increased, the CNH exchange rate strengthened significantly. On December 15, CNH broke through 7.05 against the dollar, rebounding more than 4% from the year’s high, setting a 13-month high.

In summary: As long as you grasp these four key factors, your chances of successfully investing in RMB-related assets will greatly improve.