RMB appreciation accelerates at the end of the year! The offshore market rose above the 7.0 mark, and the onshore market rose above the 7.01 mark, both hitting new highs since the end of September last year.

# Source: Wall Street Insights

The RMB’s appreciation pace has accelerated toward the year-end, with the exchange rate breaking through key psychological levels one after another. On Thursday, the offshore RMB (CNH) strengthened beyond the 7.0 mark against the US dollar, and the onshore RMB (CNY) breached the 7.01 level on the same day. Both rates hit their highest levels since late September 2024, reflecting an asymmetric appreciation trend of the RMB amid the overall weakness of the US dollar.

The RMB central parity rate was strengthened by 0.11%, marking the largest upward adjustment since late August, coming in at 7.0392 yuan. The spread between the central parity rate and the forecast widened to 241 basis points, with the degree of undervaluation further approaching the historical maximum of 252 basis points recorded in February 2022.

Notably, the RMB’s appreciation has picked up noticeably since December, with USD/CNH falling by a cumulative 500 basis points, and adjustments to the central parity rate have also become more flexible. This exchange rate trend is supported by multiple factors, including a record-high China’s trade surplus of $1 trillion in the first 11 months of 2025, rising corporate foreign exchange settlement ratios, and the weakening trend of the US dollar. Market expectations for further RMB appreciation are strengthening.

There are divergences in the market’s interpretation of this round of appreciation. The traditional view attributes it to the year-end foreign exchange settlement wave, but the latest report from Shenwan Hongyuan points out that the actual driving forces are more from the central bank’s active regulation and changes in the US dollar environment, rather than concentrated corporate settlement activities. Data shows that during the period when the RMB appreciated the fastest, the core indicator reflecting corporate willingness to settle foreign exchange actually weakened significantly.

This round of appreciation has exerted tangible pressure on export-oriented enterprises holding foreign exchange, while also reflecting a strengthening of market optimism toward the RMB’s trend in 2025. As the US dollar interest rate cut cycle unfolds, the narrowing of interest rate spread gains can no longer cover exchange rate volatility risks, accelerating corporate decisions to settle foreign exchange.

## Central Bank Regulation Rather Than Settlement Wave as the Driver?

The report from Shenwan Hongyuan challenges the mainstream market view. Data indicates that the banks’ client foreign exchange settlement ratio (excluding forward contract fulfillment) has declined consecutively after hitting a high of 63.1% in September, dropping to 54.1% in October and further falling to 52.0% in November. This means that during the period of sharp RMB appreciation since mid-October, enterprises’ actual willingness to settle foreign exchange did not strengthen; instead, it weakened significantly.

The report argues that the recent RMB appreciation is mainly driven by the central bank’s active regulation and changes in the external US dollar environment. Since mid-October, against the backdrop of a modest depreciation of the US dollar, the RMB has seen an asymmetric sharp rally—a divergence in trends that cannot be fully explained by the traditional seasonal factor of year-end foreign exchange settlement.

## Shifting Market Expectations Trigger Early Moves

Although November’s settlement ratio data did not show a sharp rise, market behavior has undergone obvious changes in December. Analysis from *Morning FX* points out that supported by the huge annual trade surplus, enterprises holding foreign exchange for settlement seem to have started to make early moves. On the trading front, USD/CNH has struggled to gain upward momentum; every rebound of 30 to 50 basis points is followed by a quick pullback and a gradual move to new lows.

Trading volumes have started to pick up, and the previous mindset of "growing more hesitant as appreciation continues" is shifting. The core reason lies in the formation of a consensus market expectation for RMB appreciation in 2026. Currently, major foreign-funded banks and domestic institutions are generally optimistic about the RMB’s performance next year, with disagreements only on the magnitude and pace of appreciation.

The narrowing of interest rate spread gains following US dollar rate cuts can no longer offset the potential losses from exchange rate fluctuations. Under the relatively single structure of China’s domestic foreign exchange market dominated by "export enterprises-banks", foreign exchange settlement driving RMB appreciation has become the main theme in the era of low US dollar interest rates.

Goldman Sachs analysts believe that the subtle switch in the central bank’s wording from "resilience" to "flexibility" in its monetary policy statements reveals the policymakers’ approach to RMB exchange rate management: they favor a stronger exchange rate level but aim to avoid overly rapid appreciation. In the fourth-quarter monetary policy committee meeting minutes released on Wednesday, the central bank once again emphasized "enhancing the resilience of the foreign exchange market", indicating that policymakers intend to moderate the pace of appreciation and guard against the risk of exchange rate overshooting.

## Risk Warning and Disclaimer

The market is inherently risky, and all investments should be made with caution. This document does not constitute personal investment advice and does not take into account the specific investment objectives, financial conditions, or needs of individual users. Users should carefully consider whether any opinions, viewpoints, or conclusions contained in this document are suitable for their specific circumstances. Any investment made based on this document shall be at the user’s own risk.