The RMB exchange rate broke through 7.05

The RMB exchange rate has recently shown strong performance. On December 15th, both the onshore and offshore RMB exchange rates against the US dollar broke through the 7.05 mark during trading, reaching a new high since October 8th, 2024. Ultimately, the onshore RMB closed at 7.0505 against the US dollar, up 49 points from the previous trading day.

Regarding the recent rapid appreciation of the RMB, Wang Qing, chief macro analyst at Orient Securities, stated that the stronger RMB trend helps boost confidence in the domestic capital market, attracts more overseas capital inflows, and forms a positive correlation with the foreign exchange market. He believes that the RMB may continue its strong trend in the short term, and the focus going forward should be on the movement of the US dollar index, the strength of RMB central parity rate adjustments, and the pace of implementation of domestic pro-growth policies.

Looking back at the overall trend in 2025, the RMB exchange rate has demonstrated stronger autonomy and stability. Ding Muqiao, a foreign exchange analyst at the China Merchants Bank’s Capital Operations Center, pointed out that against the backdrop of a significant initial decline followed by consolidation in the US dollar index this year, the correlation between the RMB exchange rate and the US dollar has weakened, and external interference has decreased. Benefiting from strong exports leading to the accumulation of foreign exchange deposits, the narrowing of the China-US interest rate differential due to the Federal Reserve’s interest rate cuts, and policy guidance aimed at “enhancing the resilience of the foreign exchange market” and “maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level,” the RMB exchange rate experienced a moderate and gradual appreciation throughout the year.

Meanwhile, Ding Muqiao specifically mentioned that disorderly market fluctuations significantly decreased, with exchange rate volatility falling to a near 10-year low. The RMB appreciated by approximately 3% against the US dollar throughout the year.

Policy measures continued to provide clear guidance for exchange rate stability. The recent Central Economic Work Conference reiterated the need to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. The People’s Bank of China, in its recently released “China Monetary Policy Implementation Report for the Third Quarter of 2025,” also clarified that the next stage will focus on monitoring and analyzing cross-border capital flows, adhering to a bottom-line mentality, implementing comprehensive measures, enhancing the resilience of the foreign exchange market, stabilizing market expectations, and preventing the risk of exchange rate overshooting.

Looking ahead, institutions generally believe that the RMB is likely to maintain a relatively strong trend in the short term. CITIC Securities analysis points out that the market has fully priced in the Federal Reserve’s December interest rate cut, while the effects of domestic policies on boosting the economy remain to be seen. The central bank’s policy of stabilizing the exchange rate aims to prevent the market from forming a one-sided consensus expectation. It is expected that the RMB exchange rate will be unlikely to substantially break through the 7.0 mark this year, but the possibility of a temporary breakthrough cannot be ruled out due to seasonal year-end settlement demand.

Regarding the long-term outlook, international institutions have slightly different forecasts. Deutsche Bank predicts that the RMB/USD exchange rate will rise to 6.7 by the end of 2026 and further to 6.5 by the end of 2027. Morgan Stanley’s chief economist for China, Xing Ziqiang, predicts that the USD/CNY exchange rate may reach 7.05 by the end of 2026 and 6.95 by the end of 2027.