The RMB exchange rate has risen above 6.7—will it continue to strengthen?

In the same week, the Bank of Japan raised its policy rate to 1.25%, the highest in 31 years. The European Central Bank completed its second interest-rate hike of the year. For the first time since 2006, the three major central banks tightened monetary policy simultaneously. Under the old script of the past decade-plus, whenever the U.S. Federal Reserve hiked rates, the U.S. dollar strengthened—and the RMB came under pressure. Yet the actual outcome was different: after the U.S. Dollar Index surged to 100.3, it retreated; meanwhile, the RMB’s central parity rate rose for eight consecutive trading days. On September 18, both onshore and offshore RMB exchange rates broke above 6.7—the strongest level since January 2023. Year-to-date, the RMB has appreciated roughly 4%, making it one of Asia’s strongest-performing currencies. Has the interest-rate-differential logic broken down? No—it hasn’t broken down; rather, it’s been overwhelmed by a stronger force. Most likely, the RMB’s pricing anchor has shifted from interest-rate differentials to the trade balance. In the past, analysts assessed exchange-rate movements primarily by examining how deeply the U.S.–China interest-rate differential was inverted—and where capital flows were headed. Today, the focus has shifted to how many U.S. dollars Chinese exporters have earned—and when they convert those dollars into RMB. According to customs data, China’s exports totaled $2.92 trillion in the first eight months of the year—a 14.6% year-on-year increase. Bank-conducted foreign-exchange settlement and sales data offer an even clearer picture: in December 2025, the net settlement surplus reached $99.93 billion—the largest single-month surplus on record; in January 2026, it stood at $88.76 billion—the third-largest monthly surplus ever. Chinese exporters are accelerating their conversion of U.S. dollars into RMB. This buying pressure originates from real goods trade—not speculative interest-rate arbitrage—and is therefore far more stable. Here, a self-reinforcing cycle emerges. Over the past two years, as the RMB weakened, exporters grew accustomed to holding U.S. dollars in their accounts to earn dollar-denominated interest—and waiting for RMB appreciation before converting.

Interpreting the RMB’s counter-trend appreciation

The immediate cause is persistently strong foreign-trade surpluses and exceptionally robust foreign-exchange settlement, compounded by coordinated pressure from developed economies—including the U.S., Europe, and Japan—reminiscent of the pre-Plaza Accord era in Japan. The fundamental reason lies in the declining credibility of the U.S. dollar system—a potentially epochal shift. As the dollar loses purchasing power, alternative stores of value—including gold and, increasingly, the RMB—are gaining favor. Why do we believe multiple relationships and active choice are strongly correlated? Because the yield spread between 10-year Chinese and U.S. government bonds continues to widen—yet the RMB exchange rate moves in the opposite direction! When something highly unusual occurs, it warrants close scrutiny. We must remain vigilant about asset-price shocks triggered by a reversal in exchange-rate trends—and also guard against two graver challenges posed by sustained, rapid RMB appreciation: ❶ Pressure on foreign trade; ❷ A ‘Plaza Accord 2.0’. In short, blind speculation—fantasizing about overnight wealth—is wholly unwarranted. In the current environment, a broad-based bull market is virtually impossible; at best, we may see a structural realignment.

US Dollar Strength to Fizzle, FX Forecasters Unmoved by Searing Rally: Reuters Poll

Oct 2, 2026

Reuters poll of FX strategists predicts US dollar weakness over the next year despite recent gains, citing high oil prices and Fed rate hikes as key inflation drivers.

reuters

2026-05-06

Reuters Poll: US Dollar Range-Bound Amid Strait of Hormuz Tensions

2026-05-29

Analysts hike oil forecasts again as energy flows face slow recovery: Reuters poll

2026-06-30

Analysts Dial Down Oil Forecasts as Hormuz Reopening Eases Supply Concerns: Reuters Poll

2026-07-03

US-Iran War Still Trails 1979 Oil Shock by Total Losses

2026-07-22

Middle East War Deepens 2026 Oil Deficit Outlook, But 2027 Glut Still Looms