USD to RMB exchange rate approaches 7.00: economic data weakness cannot stop the appreciation trend

The Chinese Renminbi has recently been a bit “tough.”

The USD/CNH (US dollar to offshore Chinese yuan) continued to strengthen on Wednesday, approaching the psychological barrier of 7.00, but this rally is taking place against a strange backdrop: China’s November economic data underperformed expectations. Usually, in such situations, the yuan should weaken. But the reality is the opposite — the offshore yuan not only did not depreciate but rebounded as the dollar weakened, with USD/CNH once approaching below 7.05. Market sentiment towards the yuan is quietly changing.

Exporters are waiting, and the market is sensing an appreciation signal

Chinese customs data reveal the reason: the trade surplus in the first 11 months has already reached $1 trillion. This massive foreign exchange reserve has become the “ammunition depot” for yuan appreciation.

A senior foreign exchange trader based in Shanghai disclosed the true market sentiment: “Companies see the exchange rate falling from 7.10 to 7.05 and get anxious immediately. They think, if they don’t convert back to yuan now, the costs will be higher when year-end bonuses are paid.” This expectation has become self-fulfilling — the pressure for yuan appreciation is thus created.

Over the past two years, due to the US-China interest rate differential inversion, exporters accumulated large dollar positions. Now, with the Fed’s rate cut expectations gradually becoming clearer, the dollar index has also broken below the 102 support level, stimulating exporters’ willingness to convert foreign exchange income. Chris Turner, an FX analyst at ING, pointed out: “The yuan is once again attracting investors’ attention. This momentum comes from strong export data confirmed by trade figures, and companies rushing to sell foreign exchange income at better exchange rates.”

The central bank has made a rare move in pricing

The real signal comes from the People’s Bank of China (PBoC).

Recently, the PBoC’s midpoint setting for USD/CNY experienced a rare adjustment over the past three years — they set the midpoint above the model estimate. This sounds technical, but the implication is clear: Beijing is gradually guiding the yuan to appreciate, but not too quickly.

According to a report from OCBC Bank, this is “a deliberate move aimed at guiding the yuan on a gradual appreciation path.” In other words, the PBoC is not passively following the market but actively steering.

What can a strong yuan do for China’s economy?

The strategic logic behind this warrants deep thought. BBH (Brown Brothers Harriman) analysis hits the mark: yuan appreciation can help shift China’s economic growth engine from export-driven to consumption-driven. A stronger currency means lower import costs, and household purchasing power is accordingly enhanced.

In the current environment, this has multiple implications: the real estate market is adjusting, a stronger yuan can buffer domestic demand consumption; amid global inflation shadows, an appreciating yuan can hedge input cost pressures; at the same time, leveraging exchange rates can push the export industry to upgrade and transform.

But warnings also come with it. Analysts from Standard Chartered and Goldman Sachs emphasize: 7.00 is not just a psychological barrier but also a profit red line for exporters. If the yuan appreciates too quickly, it will directly undermine export competitiveness and may even deepen economic cooling.

Risks and opportunities ahead

In the short term, the market is watching whether the central bank will adjust the pace of the midpoint setting downward. If the PBoC sets a higher midpoint to slow the appreciation, the exchange rate may enter a consolidation phase.

From a medium- to long-term perspective, ING forecasts that if the Fed cuts interest rates twice again in 2026 as expected, the dollar will remain weak, and the pressure for yuan appreciation will further increase, with USD/CNH even potentially falling below 7.00.

However, risks are brewing: escalation of US-China trade tariffs (Goldman Sachs predicts that if tariffs are increased, USD/CNY could rise to 7.40-7.50), and volatility in global commodities impacting the yuan. Capital Economics emphasizes that China will not actively devalue the yuan significantly to prevent financial instability, but it must find a balance between export competitiveness and economic stability.

Investors are closely watching

The current market resembles an early positioning for future scenarios. Global capital is beginning to assume that, over the next two years, as US-China interest rate differentials narrow, the dollar enters a weakening cycle, and policy communication remains stable, the yuan has the potential to gradually recover and appreciate. This is not a one-way bet but a tactical adjustment under controlled risk conditions.

The 7.00 level has become a focal point for global investors — it is both a psychological line and a warning line for China’s export competitiveness. If the appreciation accelerates too fast, damaging export profits, the PBOC may intervene at any time by raising foreign exchange reserve requirement ratios or strengthening macroprudential management to cool the market.

For global investors, the model for valuing Chinese assets is being upgraded: growth rates and interest rates used to be core variables, but now the strategic value of currency and reform commitment are becoming new, influential factors.