06:39 AM EST, 12/31/2025 (MT Newswires) -- The recent acceleration in renminbi (CNY) appreciation is drawing increased market attention as investors head into 2026, said MUFG.

USD/CNY is on track for its 17th consecutive daily decline and has broken below the 7.000 level for the first time since May 2023, wrote the bank in a note to clients.

China's central bank (PBoC) has also been setting progressively lower daily fixes, with the latest at 7.0288, signaling that policymakers are now more comfortable allowing the renminbi to strengthen against the US dollar (USD) after maintaining stability earlier in the year, stated MUFG.

By keeping USD/CNY stable during the sharp US dollar sell-off earlier this year, the trade-weighted renminbi weakened significantly, boosting China's export competitiveness. The CFETS renminbi index fell about 6.7% between January and July but has since rebounded by roughly 2.5%, pointed out the bank.

The decision to permit recent renminbi gains may reflect greater confidence in China's ability to withstand trade disruptions. The country's trade surplus reached a record $1.18 trillion over the past 12 months through November.

Downside risks to the United States trade have also eased following the extension of the trade truce by 12 months and a 10% reduction in tariffs on Chinese goods.

Still, the pace of appreciation has sparked some caution, added MUFG. The People's Daily recently urged market participants to remain rational in their currency expectations, while other domestic media warned against one-way bets. The PBoC's annual financial stability report emphasized maintaining exchange rate flexibility, guiding expectations, and guarding against "overshooting risks."

Reports also suggest that Chinese state banks stepped up US dollar purchases after USD/CNY broke below 7.0000.

Overall, these developments support MUFG's forecast for a stronger renminbi in 2026, though the bank doubts the recent rapid appreciation will persist. The currency was further buoyed overnight Tuesday by stronger-than-expected December PMI surveys, reversing prior declines in business confidence.

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