RMB appreciation signals reveal policy intentions; whether the USD to RMB exchange rate can break through 7.00 remains a focus.

The offshore renminbi has recently shown strong performance, with the USD/CNH exchange rate continuing to rise, approaching the psychological threshold of 7.00. Paradoxically, this appreciation occurred against the backdrop of weak macroeconomic data from China, sparking widespread market discussion—Is the renminbi’s appreciation policy-driven, or is it a self-fulfilling market expectation?

Divergence Between Economic Data and Exchange Rates

In November, China’s economic data fell short of expectations, with industrial output and retail sales both performing poorly. Normally, economic weakness should boost depreciation expectations, but the offshore renminbi defied the trend and strengthened, breaking a 14-month high. This decoupling reflects a key shift: the market’s assessment of the renminbi’s resilience is being reestablished.

ING Forex analyst Chris Turner pointed out that the underlying support comes from a massive trade surplus. China’s trade surplus for the first 11 months reached $1 trillion, an astonishing figure. This huge influx of foreign exchange income has become a market focus—export companies are watching exchange rates closely, waiting for the right moment to convert currency. A senior trader based in Shanghai revealed that when the USD/CNY exchange rate fell from 7.10 to 7.05, companies generally worried that delaying currency conversion would result in higher costs when year-end bonuses are paid, creating a self-fulfilling appreciation expectation.

The Central Bank’s Pricing Behavior Sends Clear Signals

The core driver behind this trend is the People’s Bank of China’s (PBoC) rare adjustment in setting the midpoint. Recently, the central bank set the USD/CNY fixing above the model estimate, which is extremely uncommon in the past three years. Traditionally, the PBoC tends to set the fixing below the model value to maintain stability, but now it is doing the opposite.

OCBC Bank analysts noted that this is a “deliberate policy action,” aimed at guiding the renminbi to appreciate gradually, avoiding sharp fluctuations while clearly signaling an intention to appreciate. In other words, the PBoC is using the midpoint as a “conductor’s baton” to send a clear message to the market: appreciation is controllable, expected, and strategic.

Strategic Shift Behind Economic Rebalancing

The renminbi’s appreciation is not just a currency issue but involves a deeper transformation of China’s economic growth model. Brown Brothers Harriman analysts believe that a strong renminbi can lower import costs, substantially enhance household purchasing power, and guide the economy from export-driven to consumption-driven.

During the property market adjustment period, appreciation can provide a buffer for domestic demand; under the shadow of global inflation, it can hedge input cost pressures; and as a currency tool, it can push export industries to upgrade. Behind this strategic shift is China’s determination to “change engines.”

Risk Warnings and the Balance Dilemma

However, the appreciation of USD/CNY is not a smooth path. Standard Chartered and Goldman Sachs have issued cautious warnings: 7.00 is not only a psychological barrier but also a profit margin line for exporters. Rapid appreciation could backfire on export competitiveness and trigger a more severe economic slowdown. Goldman Sachs forecasts that if US-China trade tariffs escalate, USD/CNY could rise to 7.40-7.50, but also believes China will not actively devalue significantly to prevent financial instability.

Institutions like Capital Economics emphasize that policymakers face a delicate balance: they need to promote structural adjustment through currency appreciation while protecting export competitiveness. If appreciation accelerates uncontrollably, the central bank may respond by raising foreign exchange reserve requirement ratios (RRR) or strengthening macroprudential management to cool the market.

Forecasts and Scenario Analysis for 2026

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

In the medium to long term, ING believes that if the Federal Reserve (Fed) cuts interest rates twice again in 2026 as expected, the dollar’s weakness could persist, and USD/CNY could fall below 7.00. However, risks such as global commodity volatility and the convergence of US-China interest rate spreads should not be overlooked.

Currently, the trend resembles a speculative trade—international funds are engaging in “low allocation and rebalancing” under the premise of manageable risks, assuming that in the next two years, US-China interest rate spreads will narrow, the dollar cycle will weaken, and policy communication will remain stable. This is not a one-way bet but a process of re-pricing Chinese assets.

For global investors, beyond growth and interest rates, the strategic value and reform commitment behind the renminbi are becoming new variables in assessing Chinese assets. The direction of USD/CNY will profoundly influence judgments on whether China’s economic transformation can succeed.