The pace of RMB appreciation is slowing, but the trend has not been reversed

Overview

This report is an FX Insight from Barclays FICC Research, focusing on whether the recent pause in RMB appreciation signals a trend reversal. The conclusion is that the pause should not be misread as a turning point: the medium-term appreciation logic for the RMB has not materially changed, but the pace of future appreciation will be slower and more measured than in recent months.

Core views

The report maintains a constructive view on the RMB and forecasts USDCNY at 6.65 by end-2026, slightly stronger than forward pricing. The authors believe that official resistance to the pace of appreciation, a stronger trade-weighted RMB, slowing exporter FX conversion, and weaker onshore sentiment will together limit near-term appreciation momentum. However, trade and current account surpluses, still-elevated conversion flows, and management of capital outflows will continue to provide underlying support for the RMB.

Analysis framework

The report assesses the RMB outlook through four angles: first, the deviation between the official USDCNY fixing and the market-implied fixing; second, the relative strength of the CFETS trade-weighted RMB index and REER; third, the relationship between exporters' USD conversion and DXY strength; and fourth, changes in RMB sentiment reflected in the onshore 3-month 25-delta risk reversal. Combined with China's recent policies to restrict capital outflows, the report concludes that the policy objective is closer to slowing appreciation rather than driving a new round of depreciation.

Methodology notes

• fx_strategyfixing_deviation_analysis

  Fixing deviation analysis

  By comparing the official USDCNY fixing with the market-implied fixing, this framework observes whether the central bank is guiding or restraining RMB moves.

• fx_strategytrade_weighted_currency_index

  Trade-weighted exchange rate analysis

  Uses the CFETS RMB Index and REER to assess the RMB's strength versus a basket of currencies and in real effective terms, thereby judging export competitiveness constraints.

• fx_strategyexporter_conversion_flow

  Exporter FX conversion flow analysis

  Examines the pace at which exporters convert USD revenues into RMB to gauge the persistence of current-account-surplus support for the currency.

• fx_options25_delta_risk_reversal

  Risk reversal skew

  Uses the 3-month 25-delta risk reversal to measure the onshore market's pricing bias toward RMB appreciation or depreciation risk.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CNY

  Core research subject

  Strengths

  External surpluses, exporters' USD conversion, and management of capital outflows continue to provide support.

  Weaknesses

  Officials do not want appreciation to be too rapid, and higher CFETS Index and REER levels are narrowing the room for further gains.

  Comparison

  There is still room for gradual appreciation versus the USD, but the pace may be slower than recent performance.

  Risks

  A broad USD rebound, delayed exporter conversion, and further weakening in onshore RMB sentiment.

• CNHINR

  Recommended trade

  Strengths

  It offers relative-value appeal in a backdrop where the RMB retains medium-term support but appreciates only slowly against the USD.

  Weaknesses

  If RMB appreciation momentum slows materially or the INR performs better than expected, trade returns may be limited.

  Comparison

  The report prefers CNHINR relative value rather than simply chasing a rapid decline in USDCNY.

  Risks

  USD strength, regional FX volatility, changes in capital flows, and policy surprises.

• USD

  Key external variable

  Strengths

  If the USD environment strengthens, exporters may choose to retain more foreign-currency income.

  Weaknesses

  China's external surplus may still put downward pressure on USD/CNY.

  Comparison

  A USD rebound would weaken the pace of RMB appreciation, but the report does not see it as enough to reverse the RMB's medium-term direction.

  Risks

  A sharp rebound in DXY causing a significant slowdown in exporters' FX conversion.

Key data

• USDCNY forecast6.65 by end-2026Barclays maintains its end-2026 USDCNY forecast of 6.65, slightly stronger than forward pricing.
• Key levelsUSDCNY broke below 6.80 in early May; fixing below 6.80 on 10 JulyThe break below 6.80 briefly drew market attention, but was followed by consolidation rather than a new round of rapid appreciation.
• Fixing signalofficial fixing consistently weaker than market expectationsThis indicates that the PBoC is still restraining the pace of RMB appreciation.
• CFETS RMB Indexclose to highest level since August 2022The trade-weighted RMB is already at elevated levels, and further appreciation could increase pressure on export competitiveness.
• Capital outflow regulationrevised Outbound Investment Regulations effective 1 July 2026The new rules strengthen the approval and review powers of the NDRC, MOFCOM, and SAFE over outbound investment.
• Trade recommendationstay long CNHINRThe report prefers relative-value opportunities rather than a pure bet on rapid RMB appreciation against the USD.

Impact & implications

For investors, the main implication of the report is that the RMB direction still leans toward appreciation, but trading should shift from a fast trend trade to a more gradual relative-value allocation. There is still a basis for further downside in USDCNY, but official policy, export competitiveness, and the risk of a USD rebound will limit the slope, so Barclays prefers to maintain a long CNHINR position.

Risks

• A broad USD rebound could cause a more pronounced slowdown in exporters' USD conversion.
• Official PBoC resistance to the pace of appreciation could limit downside in USDCNY.
• The CFETS RMB Index and REER have already risen, and further appreciation could affect export competitiveness.
• Onshore FX sentiment has weakened, with the 3-month 25-delta risk reversal no longer as bullish on the RMB as earlier this year.
• If exports or the current account surplus weaken, the RMB's underlying support could decline.

What to watch

• The direction and magnitude of the deviation between the official USDCNY fixing and the market-implied fixing.
• Whether the CFETS RMB Index continues to approach or break above its highest level since August 2022.
• Whether exporters' USD conversion volumes continue to decline from elevated levels.
• The DXY trend and its impact on exporters' willingness to hold FX.
• Changes in RMB sentiment reflected in the 3-month 25-delta risk reversal.
• Policies related to cross-border equity trading, outbound investment approvals, and SAFE capital flow management.