Since the beginning of the year, the onshore renminbi has appreciated more than 2.8%, while the offshore renminbi has gained approximately 2.80%, marking the first break below the 6.78 level since February 10, 2023. Multiple international investment banks have already raised their year-end forecasts for the renminbi. Three rare variables are now reinforcing each other simultaneously: easing Middle East tensions, strong export growth, and progress in China-US trade negotiations. Markets are now actively repricing the renminbi. Meanwhile, the People’s Bank of China’s earlier reserve requirement ratio cuts, combined with the latest issuance of RMB 30 billion in offshore central bank bills, continue forming an implicit policy boundary that has not yet tightened.

First Driving Force: Ceasefire Expectations in the Middle East Reduce Safe-Haven Demand

The most immediate catalyst behind the renminbi’s break below 6.78 on May 27 came from the fading of the US dollar’s safe-haven premium. Ongoing progress in Middle East negotiations is reshaping short-term global capital flows. Safe-haven funds that had previously rushed into US dollar assets due to conflict concerns have now begun flowing back out as geopolitical tensions ease. The US Dollar Index retreated from previous highs, directly supporting the renminbi’s appreciation and becoming the immediate catalyst for the breakout below 6.78.

Second Driving Force: April Export Data Provides Fundamental Support

While fading safe-haven demand helps explain the intraday breakout, it cannot fully explain why the renminbi continued strengthening even as the US Dollar Index itself gained approximately 1% during May. This rare “double-strength” dynamic — where both the dollar and renminbi appreciate simultaneously — suggests the renminbi possesses its own independent internal appreciation momentum.

That momentum comes from exports. Data released by China’s General Administration of Customs on May 9 showed that April exports denominated in US dollars rose 14.1% year-on-year, while imports increased 25.3%, resulting in a trade surplus of US$84.82 billion. Earlier preliminary data released by the State Administration of Foreign Exchange showed China recorded a current account surplus of RMB 1.2821 trillion during the first quarter, including a goods trade surplus of RMB 1.7212 trillion.

Current account surpluses remain the renminbi’s most fundamental “anchor.” As long as exports continue growing strongly and trade surpluses remain elevated, the foreign exchange market naturally remains in a net supply position, continuously generating demand for RMB conversion and providing long-term fuel for renminbi appreciation.

Third Driving Force: Improved Expectations Following China-US Trade Negotiations

Since May, the preliminary trade negotiation outcomes reached during Trump’s China visit have continued accelerating toward implementation. Latest developments on May 28 showed the US side is now actively advancing implementation measures, including preparations to establish a China-US Trade Council and plans for tariff reductions covering roughly US$30 billion worth of goods. US Trade Representative Jamieson Greer stated on May 26 local time that a notice seeking public comments on establishing the China-US Trade Council would soon be published in the Federal Register. China’s Ministry of Commerce had previously confirmed that both sides had, in principle, agreed to discuss a reciprocal tariff reduction framework involving products worth approximately US$30 billion or more under the proposed Trade Council structure.

Since major progress in China-US trade negotiations emerged at the end of October 2025 and China’s external trade environment began stabilizing, the renminbi has steadily entered its current appreciation cycle. Expectations for a tariff truce are continuously reducing the tail-risk premium attached to RMB-denominated assets. In terms of market confidence, this support may be just as important as several percentage points of export growth.

In addition, on May 27, the People’s Bank of China issued the fourth and fifth batches of 2026 offshore central bank bills in Hong Kong totaling RMB 30 billion. Offshore RMB bill issuance tightens liquidity conditions within the offshore RMB market and raises the cost of short-selling the renminbi, thereby providing additional support for the exchange rate.

Among international financial institutions, HSBC recently raised its year-end RMB forecast from 6.75 to 6.65 against the US dollar, while Deutsche Bank raised its end-2026 base-case forecast from 6.70 to 6.55.

In the short term, three major forces continue supporting the renminbi: momentum from strong export growth, returning capital flows as Middle East tensions ease, and improving China-US trade relations. However, the US Dollar Index remains consolidating near the 99 level, while US-Iran negotiations could still face setbacks, and oil-price volatility continues influencing US inflation expectations. External conditions have not yet fully shifted toward a sustained US dollar downtrend. At the same time, the PBOC’s policy toolkit — ranging from offshore RMB bill issuance pace to countercyclical adjustment factors — remains fully capable of intervening if RMB appreciation accelerates too rapidly.