"The '7' level is more of a mathematical significance; there's no need for the market to overreact."
On December 25, the foreign exchange market witnessed a symbolic moment—the offshore renminbi (CNH) to US dollar exchange rate opened above the psychologically important "7" level, reclaiming this key integer threshold for the first time since October 2024. It hit an intraday high of 6.9985, marking a 15-month peak. Simultaneously, the onshore renminbi (CNY) strengthened in tandem, approaching the "7" level to close at 7.0066, its highest level since September 2024.
Since the beginning of 2025, accompanied by a weakening US dollar, the renminbi exchange rate has embarked on a significant appreciation path. Following late November, this trend has become even more pronounced, exhibiting a clear one-way appreciation pattern. "The '7' level is more of a mathematical significance; there's not much substantial difference compared to 6.9 or 7.1, and the market need not overreact," Guan Tao, Global Chief Economist at BOC International, stated. Guan Tao believes the recent renminbi appreciation is driven by short-term bullish factors gaining the upper hand, rather than signaling the start of a new appreciation cycle. Overall, the renminbi exchange rate is unlikely to exhibit a one-way trend next year and is more probable to fluctuate repeatedly around the 7 level. The ultimate trajectory of the renminbi will primarily depend on three key factors: the relative strength of economic recovery in China and the US, the trend of US dollar interest rates and the exchange rate, and the evolution of China's foreign trade relations alongside its domestic economic recovery. The market should avoid excessive fixation on predicting specific levels and should not form linear expectations of either one-way appreciation or depreciation; two-way exchange rate volatility is set to become the norm.
The immediate driving force behind this round of renminbi appreciation stems from a shift in the US dollar environment. Guan Tao indicated that the US Dollar Index (DXY) rose above 100 in November but subsequently continued to retreat, falling below 98. "The weakening dollar has provided external support for the renminbi's appreciation," he said. Zhao Qingming, Vice President of the Hui Guan Information Technology Research Institute, also noted that since late November, the DXY has fallen by approximately 3%, with non-US currencies generally strengthening. The renminbi's rise basically corresponds to the magnitude of the dollar's depreciation, fully demonstrating the "seesaw effect" of exchange rates.
On the other hand, the steady performance of China's economic fundamentals is also a critical factor. According to customs data, China's goods trade surplus reached $1.0758 trillion in the first 11 months of 2025. "Ample foreign exchange reserves provide a solid foundation for the renminbi exchange rate, and the annual economic growth target of around 5% is basically achievable, further bolstering market confidence in the renminbi," Guan Tao added. Increased year-end corporate foreign exchange settlement demand has also contributed to the seasonal strength of the renminbi. Notably, the widely discussed "settlement wave" is not the primary driver of this appreciation. Despite a rapid appreciation wave since mid-October, the settlement rate has not increased.
Data from the State Administration of Foreign Exchange shows that since September, both client-side foreign exchange settlement and sales by banks have seen significant month-on-month growth. The settlement-surplus was $51 billion in September, $17.7 billion in October, and $15.7 billion in November, with both October and November figures narrowing sequentially compared to the previous month. "Some views attribute the recent renminbi appreciation to a 'settlement wave,' but data indicates that both the settlement rate and the payment purchase rate declined month-on-month in November," Guan Tao explained. This phenomenon suggests that companies are increasingly choosing to use their own foreign exchange income to offset foreign exchange expenditures, naturally hedging to avoid exchange rate risk, rather than blindly settling or purchasing foreign exchange. This also reflects the market's growing adaptability to two-way exchange rate fluctuations.
As the renminbi exchange rate continues to strengthen, discussions about a "new renminbi appreciation cycle" have heated up. However, many experts remain cautious, generally believing that the exchange rate lacks the foundation for sustained one-way appreciation next year and will likely be dominated by two-way volatility. "A sustained appreciation trend requires two key conditions: first, a continuous decline in the US Dollar Index; second, strong support from domestic economic fundamentals," Zhao Qingming stated.
Regarding the dollar's trajectory, Zhao Qingming expects the DXY will likely follow a pattern of falling first and then rising next year. This implies that the renminbi has potential for appreciation during phases of dollar weakness, but once the dollar begins to rebound, the momentum for renminbi appreciation will weaken. Guan Tao also expressed a prudent view on the dollar's future path. He noted that the dollar has already depreciated by nearly 10% year-to-date. Following a 9.9% decline in 2017, the dollar did not continue falling in 2018 but instead stabilized and rebounded. The market has already priced in various factors detrimental to the dollar relatively fully, meaning a trend-like decline next year would require a higher threshold; ordinary negative factors are unlikely to have a substantive impact. Furthermore, significant uncertainties remain regarding the US economic trajectory and inflation levels next year. If the US economy re-accelerates and inflation does not subside, the Federal Reserve's room for interest rate cuts will be constrained. Simultaneously, whether the new Fed Chair will steadfastly uphold the Fed's independence will also influence the path of US dollar interest rates and the exchange rate.
Looking ahead to next year's renminbi trend, numerous uncertainties persist, making it difficult to form a clear expectation of one-way appreciation. From the perspective of domestic economic fundamentals, one crucial support for China's economic growth this year has been stronger-than-expected external demand. In the first three quarters, exports contributed 1.5 percentage points to GDP growth, an increase of 0.36 percentage points compared to the same period last year. Guan Tao cautioned that if external demand growth slows next year, and the expansion of the trade surplus weakens or even declines, significant uncertainty remains as to whether domestic demand can promptly fill this gap, which would consequently affect the fluctuation center of the renminbi exchange rate.
The complexity of China's external trade environment also adds variables to the future path of the renminbi. The recent Central Economic Work Conference explicitly called for "better coordinating domestic economic work and international economic and trade struggles." Guan Tao believes that Sino-US relations could see reversals during negotiations, and China's trade relations with other countries also hold uncertainties. Some countries might take targeted measures in response to China's persistently expanding trade surplus, and trade agreements signed by some countries with the US contain exclusive clauses targeting third parties, all of which could impact the renminbi exchange rate.
It is essential to recognize that exchange rate movements are influenced by multiple factors; no single factor can determine the final direction, and simple linear extrapolations are often invalid. While some market views suggest that an expanding trade surplus inevitably pushes the renminbi higher, reality does not bear this out. Guan Tao illustrated this by noting that since 2012, China's trade surplus increased year-on-year in 10 years. Among those, the renminbi appreciated in 5 instances and depreciated in the other 5, with roughly equal probability. For example, in 2015, China's trade surplus increased by 55% year-on-year, yet the renminbi did not appreciate that year. In 2022 and 2023, the trade surplus continued to expand, but the renminbi still faced downward pressure.
The Central Economic Work Conference communiqué has explicitly stated for several consecutive years the goal of "keeping the renminbi exchange rate basically stable at an adaptive and equilibrium level." This policy orientation reflects the regulators' aim to prevent both excessive depreciation and excessive appreciation of the exchange rate, helping to curb pro-cyclical, one-way herd effects in the foreign exchange market. In practice, as the renminbi recently entered an accelerated appreciation channel, regulatory authorities have already employed precise measures to actively temper one-sided market sentiment.
Wen Bin, Chief Economist at China Minsheng Bank, noted that since December, regulators have intentionally set the deviation between the central parity rate and the spot rate in a direction that suggests a moderation of the exchange rate. Furthermore, as the renminbi appreciated rapidly, the magnitude of the deviation between the central parity and the spot rate increased. This might indicate the presence of a consensus expectation for appreciation in the foreign exchange market, which the regulators are intentionally moderating to counter this pro-cyclical behavior. Given the enhanced role of external demand in driving China's economy, rapid renminbi appreciation might not be conducive to maintaining stable export growth.
Guan Tao emphasized that the core reference for the "adaptive and equilibrium level" of the renminbi is the real effective exchange rate, not a specific bilateral nominal exchange rate range. Factors such as the level of the DXY and the inflation differential between China and the US all influence the judgment of this equilibrium level. A more critical gauge for assessing whether the exchange rate is within an equilibrium range is the current account balance as a percentage of GDP. Currently, China's ratio is around 2% to 3%, which falls within the reasonable range of ±4%, indicating that the renminbi exchange rate is generally balanced.
Looking ahead to next year, the industry widely expects the renminbi exchange rate to continue its pattern of two-way volatility without exhibiting a one-sided trend. Wen Bin analyzed that the central bank will most likely continue to maintain the renminbi exchange rate's basic stability at an adaptive and equilibrium level in 2026. The policy stance will focus on preventing the risk of exchange rate overshooting. Barring situations where the renminbi faces significant depreciation pressure again, policy is unlikely to send clear signals aimed at pushing the exchange rate higher.
Regarding the impact of renminbi appreciation, industry experts generally recognize its dual nature: it brings benefits to capital markets and import-oriented enterprises, but also imposes certain pressures on export-oriented businesses. Against the backdrop of normalized two-way exchange rate volatility, companies engaged in international activities need to build systematic risk management capabilities.
On the positive side, renminbi appreciation clearly benefits domestic capital markets and the import sector. Zhao Qingming stated that renminbi appreciation is beneficial for domestic capital markets, especially the stock market. Wang Qing, Chief Macro Analyst at Golden Credit Rating, expressed a similar view: "Sustained renminbi appreciation increases the attractiveness of domestic capital markets to foreign capital, directly boosting foreign investors' exchange gains. Currently, a strong foreign exchange market also helps boost confidence in domestic capital markets."
Concurrently, renminbi appreciation presents differentiated challenges for export enterprises. "The recent rapid appreciation of the renminbi has directly caused exchange losses for our export business; the impact is multi-dimensional," said a manager from an export company in the southeastern coastal region. The stronger exchange rate not only significantly削弱s the international price competitiveness of export goods but has also led to a noticeable slowdown in order intake, thereby affecting business operations. In response to renminbi appreciation expectations, the company has opted for timely foreign exchange settlement to mitigate potential risks from exchange rate fluctuations.
Another manager from an export enterprise in Shandong province mentioned that the recent renminbi appreciation has had little immediate impact on their daily operations. "When signing orders and calculating quotes, we have long incorporated exchange rate risk into our considerations, reserving appropriate adjustment space in advance. However, dividend repatriation from our foreign-invested subsidiaries will incur exchange losses due to the appreciation."
Nevertheless, Zhao Qingming stressed that while renminbi appreciation does exert some inhibitory effect on exports, historical data since 2000 shows that appreciation has not significantly suppressed export volumes; instead, export growth rates have often accelerated during such periods. Additionally, against the current backdrop of lingering domestic deflationary pressures and persistently negative Producer Price Index (PPI) growth, renminbi appreciation could further exacerbate downward pressure on prices.
Given that the foreign exchange market is notoriously unpredictable, Wang Qing advised foreign trade enterprises not to bet on a one-sided renminbi trend. Instead, they should focus on their core business and utilize foreign exchange derivative tools like options and futures as much as possible to control exchange rate fluctuation risks. Pang Ming, Special Senior Researcher at the National Institution for Finance & Development, recommended that实体企业, especially those with international business, actively build systematic exchange rate risk management capabilities, integrating exchange rate fluctuations into daily operational decision-making. From a financial perspective, the primary principle for corporate response is to establish and practice a "risk-neutral" philosophy regarding exchange rates, focusing on the main business, and managing risks with the goal of "locking in costs and profits," avoiding speculative bets on future exchange rate movements.