USD/CNY extends three-year lows as differing fiscal policies take charge

The US Dollar (USD) has extended its 13-month downward trend against the Chinese Yuan (CNY), falling below 7.00 for the first time since 2023 as polarized government outlooks point to a sustained trend. 

USD/CNY slipped below 6.95 in recent days, as the yuan continues to build on its strong start to the year, helping to support stronger sentiment towards the currency. 

Goldman Sachs recently adjusted its forecast for USD/CNY, anticipating a prolonged lower trajectory that would see the pair reach 6.90 in three months, 6.80 in six months, and 6.70 over 12 months. 

Goldman analysts pointed to record FX inflows and continued export resilience as contributing factors for sustained appreciation of the yuan against the dollar. The bank also highlights the extent of the shift in official policy tone in China, which is paving the way for further strength in CNY.

Given that trade relations between the United States and China have cooled for now, the yuan’s resilience could continue to drive appreciation unperturbed in 2026 and beyond, while across the Pacific in the US, the government appears to be more supportive of a depreciatory cycle surrounding the greenback. 

Charting CNY’s appreciation

The rate of the yuan’s appreciation against the dollar is strengthening, with December 2025 posting the largest monthly growth versus the USD since August 2024. 

This signified a turnaround in sentiment towards USD/CNY, where speculation was focused on how far the yuan would depreciate amid a trade war with then President-elect Donald Trump. Instead, 2025 was a story of appreciation, with the currency strengthening against the dollar to boost imports and support consumption. 

Buoyed by the People’s Bank of China’s (PBoC’s) focus on stability, there’s been a strong emphasis on preventing depreciation for CNY. More recently, as the yuan has appreciated more than 5% against the dollar in 13 months, we’re seeing the PBoC shift towards managing the rate of appreciation. 

During December’s record-breaking tear, the PBoC’s countercyclical factor turned negative, suggesting that the central bank is attempting to counteract the quickening pace of appreciation. 

Notably, yield spreads between the US and China narrowed in 2025, with the two-year spread falling from 3.14pp at the beginning of the year to 2.10pp by the end, with the 10-year spread also dropping from 2.89pp to 2.31pp over the same period. 

These shifts will hinge on changes in monetary policy expectations. With markets expecting 50bp of rate cuts by the Federal Reserve and 20bp of cuts from the PBoC, yield spreads may still have room for further narrowing, but likely at a slower pace than in 2025. 

US supports further USD depreciation

While the PBoC is seeking to control the rate of appreciation for the yuan against the dollar, there appears to be no burning initiative for the Fed to slow the rate of USD depreciation. 

The dollar recently fell to its lowest level for four years against a basket of currencies, tumbling to multi-year lows against the euro and pound as it shed around 3% of its value in a week. 

Although the dollar’s struggles have raised questions about the currency’s reserve status, which has long supported lower borrowing costs in the United States, President Trump appears to be supportive of the greenback’s depreciation cycle. 

Trump suggested that the weaker dollar was ‘great’ when addressing reporters in January, pointing to the ease in doing business in a depreciatory environment. 

Although this has opened the door to speculation over just how low the dollar could go compared to the yuan, the prospect of more costly imports may present itself as a headwind. 

With the prospect of imports becoming more expensive and inflation creeping higher, the decline of the dollar may become more pronounced as more investors look to safe-haven assets as a hedge. 

“Commodities like oil or metals often become more valuable when inflation rises, simply because they’re tied to physical goods,” notes a Wealthify commentary on the impact of inflation. “Gold, in particular, is seen as a 'store of value' when paper money loses its purchasing power.”

Given that January saw gold reach a value of $5,000 for the first time, it’s clear that the dollar’s sustained weaknesses are harming the currency’s credibility moving forward. 

USD/CNY in 2026

Should current monetary policies in both the United States and China continue without a clear change of strategy, we can expect to see USD/CNY continue below 7.00 and maintain a steady decline towards 6.70 by the end of 2026, as predicted by Goldman. 

Whether the rate of appreciation of the yuan is slowed further by the PBoC could be a confounding factor, but President Trump’s clear favoring of a weaker dollar means that forex traders should brace themselves for a new landscape where USD takes a backseat against its peers.