Exchange Rate Trends - The RMB to USD exchange rate appreciated by 4% in 2025, while the USD index fell by 9.7%, indicating that the depreciation of the USD is a primary driver of the RMB's strength against the USD[2] - As of December 25, 2025, the offshore RMB to USD exchange rate broke 7.0, with the onshore rate close to the same threshold[10] Factors Driving RMB Appreciation - Four main factors are driving the RMB's appreciation against the USD: the weakening USD index, a strong Chinese stock market, increased demand for currency settlement by export enterprises, and the People's Bank of China's (PBOC) guidance for a reasonable appreciation of the RMB against the USD[2] - The PBOC has utilized a counter-cyclical factor to stabilize the RMB against a basket of currencies, leading to a controlled appreciation against the USD[14] Impact on Exports - Concerns exist that the RMB's appreciation against the USD may negatively impact Chinese exports; however, the actual effective exchange rate against a basket of currencies is more critical for export performance[3] - Despite the nominal appreciation of the RMB against the USD, the nominal effective exchange rate has decreased by 3.5%, indicating a competitive pricing advantage for Chinese goods in international markets[2] Future Outlook - The RMB is expected to maintain a strong trend against the USD in 2026, with 6.8 identified as a potential key level, although there may be risks of short-term corrections[4] - Export enterprises are advised to focus on their core business and utilize foreign exchange hedging strategies to mitigate risks associated with exchange rate fluctuations[4] Risks - Potential risks include unexpected external shocks and an accelerated appreciation of the RMB beyond expectations, which could impact corporate operations and financial markets[5]

Core Viewpoint - The recent appreciation of the Renminbi against the US dollar is primarily driven by a weakening dollar rather than a strong Chinese economy [2][3]. Group 1: Dollar Weakness - The US dollar has weakened due to changes in the global economic landscape, including long-term fiscal deficits and rising debt levels, with US debt surpassing $37 trillion and annual interest payments exceeding $1.2 trillion [2][3]. - Market expectations of a Federal Reserve rate cut in September, following disappointing employment data, have also contributed to the dollar's decline [3]. Group 2: Renminbi Appreciation - The Renminbi's appreciation against the dollar is not indicative of a robust Chinese economy but rather a response to the global trend of a weaker dollar [3][4]. - The People's Bank of China has increased the issuance of offshore central bank bills, which helps stabilize the exchange rate and attract foreign capital [3][4]. Group 3: Trade and Investment Implications - Despite the Renminbi's appreciation against the dollar, it has depreciated against a basket of currencies, which is beneficial for China's export competitiveness [5][6]. - The potential for continued Renminbi appreciation against the dollar depends on domestic stock market performance and the trajectory of the dollar [6][7]. - For Chinese investors, the appreciation of the Renminbi may reduce the returns on US dollar-denominated assets, making it a more favorable time to invest in such assets [7].