Investment Rating - The report does not explicitly provide an investment rating for the RMB outlook in 2026, but it discusses various perspectives on RMB appreciation and depreciation, indicating a cautious approach towards rapid appreciation due to low corporate margins and weak domestic demand. Core Views - The report highlights a divided market opinion on the RMB's trajectory towards 2026, with some investors expecting accelerated appreciation due to narrowing US-China rate differentials and a strong current account surplus, while others anticipate a continuation of the current appreciation pace or view the RMB as a funding currency due to weak domestic demand [1][2][3]. Summary by Sections Flow Picture and RMB Outlook - The flow picture is mildly supportive of RMB appreciation in 2026, with China's monthly trade balance averaging USD 96 billion and expectations for the current account surplus to expand from 3.4% of GDP in 2025 to 4% in 2026 [4]. - There has been a slight increase in the FX conversion ratio by exporters and mild net FX inflows since mid-2025, driven by gradual RMB appreciation and narrowing US-China rate differentials [4]. PBoC's Stance on RMB Appreciation - The People's Bank of China (PBoC) is unlikely to favor rapid RMB appreciation due to low corporate margins, despite some arguments for appreciation based on the low real effective exchange rate [12]. - The PBoC may support RMB appreciation to boost asset confidence and internationalization, especially in light of planned high-level meetings [12]. Intervention Limits and RMB Volatility - There is no clear limit on agent bank intervention on the appreciation side, as they can recycle USD assets accumulated from offshore investments [18]. - RMB volatility may mildly rise in 2026 from current historical lows, with the PBoC likely allowing increased flexibility in the RMB fixing [25]. Market Expectations and Trading Strategy - The report suggests a trading strategy involving a 3-month USDCNH put spread, expecting the USDCNH to decline towards 7.0 in the coming months, with a year-end target of 7.04-7.05 [30]. - The base case anticipates moderate RMB strength in 2026, with potential depreciation if the USD rebounds, while a significant appreciation could occur if the Fed cuts rates more than expected [30].