【Zhenzhuo Hong Kong Stock Experts】Record the largest annual increase in 5 years, RMB's upward trend continues
Since April last year, the RMB has climbed from a low of 7.35. On the last trading day of 2025, the RMB broke through the psychological barrier of 7 and touched 6.9855, the first time in two and a half years, mainly driven by year-end exporters' concentrated selling of US dollars, which strengthened the RMB.
The RMB appreciated by about 5% cumulatively in 2025, ending a three-year depreciation trend and recording the largest annual gain in five years. The PBOC recently tried to prevent the RMB from appreciating too fast by guiding the central parity weaker and issuing verbal warnings through official media, but failed to reverse the trend of continued RMB strength.
Wednesday was the last trading day of 2025, and major state-owned Chinese banks conducted year-end settlements, which temporarily reduced the demand for foreign exchange purchases in the spot market, pushing the RMB higher. This wave of "dollar selling" is expected to continue until the end of the Lunar New Year.
Some investment banks had previously widely expected the RMB to break through the 7 barrier. For example, Bank of America Global Research expects the RMB to rise to 6.8 per US dollar by the fourth quarter of 2026. The average forecast of nine investment banks shows that the RMB is expected to rise to 6.92 per US dollar by the end of this year.
Looking ahead to 2026, the RMB is expected to rise in a volatile manner and gradually strengthen, but the path of appreciation may be bumpy, and sustained and sharp one-sided appreciation is unlikely.
Managing the pace of RMB appreciation is quite challenging for the central bank. If the RMB appreciates too quickly, it will have a significant impact on the export sector; but RMB appreciation helps drive the economy toward consumption-driven transformation. The central bank needs to strike a balance between [short-term pain and long-term gains].
Looking back at last year, the RMB did strengthen significantly against the US dollar, especially after late November, when the pace of appreciation accelerated. However, if we shift from the US dollar alone to a broader basket of currencies, we will find that the RMB's performance against other major non-US currencies remains relatively weak, reflecting that this appreciation is more driven by US dollar factors rather than a comprehensive strengthening of the RMB.
Currently, the market is concerned about whether RMB appreciation will weaken export momentum. In fact, what affects export competitiveness more is not the nominal exchange rate against the US dollar, but the overall real effective exchange rate. The RMB is still at a relatively low level against a basket of currencies, coupled with moderate domestic prices and persistently high overseas inflation, which keeps the price advantage of export products.
In other words, the short-term appreciation against the US dollar has limited real impact on exports.
From another perspective, moderate RMB strength is not without benefits. The rebound in the exchange rate helps improve the structure of the balance of payments, reduce the risk of trade friction, enhance external purchasing power, and lower import costs, all of which have positive effects on household consumption and corporate investment.
Looking ahead to this year, the RMB is expected to remain strong against the US dollar and is projected to rise to 6.70 before stopping.
Written by: Professor Li Huifen, Greater Bay Area Family Office Association
(I do not hold the above stocks)
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