RMB Rises About 600 Basis Points Over Three Trading Days After Holiday; Some Firms Increase Conversion Willingness While No Concentrated Conversions Occur

The RMB staged a pronounced rally immediately after the Lunar New Year holiday. Over three trading days, both onshore and offshore RMB appreciated rapidly against the U.S. dollar, with a phase‑high move approaching 600 basis points, breaching the 6.87, 6.85 and 6.83 levels and reaching the strongest levels since April 2023.

A foreign‑exchange trader at a Hong Kong investment bank told Cailian Press that the currency has shown a steady appreciation trend year‑to‑date, with the recent acceleration particularly notable. He attributed the move to a combination of broad dollar weakness and strengthened appreciation expectations, which prompted companies that had previously held dollar balances to accelerate conversions and thereby created procyclical flows.

A finance chief at a major Hong Kong‑based Chinese enterprise said the appreciation has altered recent treasury practices. Since the second half of last year the company deliberately reduced its U.S. dollar debt share and increased RMB borrowing as a hedge. Toward year‑end it stepped up dollar conversions to lower exchange‑rate risk and to repay RMB liabilities, maintaining foreign‑currency exposure at roughly 40 percent.

Market participants generally view the recent appreciation as supported by fundamentals and corporate demand and therefore operating within a reasonable range; they judge the likelihood of significant regulatory intervention to be low. Data show that after the RMB broke below the 7.0 mark at the end of December, the currency’s strengthening continued into early 2026, with the offshore rate peaking at 6.9957. Since February the central parity has appreciated by more than 300 basis points, and both onshore and offshore rates have gained in excess of 2 percent year‑to‑date.

Analysts note that exporters accumulated substantial dollar assets during periods when the exchange rate traded between 7.0 and 7.2, leaving many positions in a floating loss at current levels. With appreciation expectations rising, some firms have engaged in accelerated conversions to avoid further erosion of reported profits, a dynamic that has amplified short‑term volatility. Although forward contracts remain an available hedging tool, corporate performance metrics often make immediate conversion the preferred option to realize revenue and profit targets.

A representative from a major bank’s Guangdong branch told Cailian Press that no concentrated conversion events were observed over the three days, but the number of firms converting dollars has increased year‑on‑year. Under conditions of RMB appreciation expectations and interest rates below U.S. levels, cross‑border enterprises frequently pursue currency hedging and arbitrage strategies, which in turn raise conversion demand. GF Securities estimates that Chinese corporates still have between USD 725 billion and USD 1.14 trillion of foreign‑currency balances awaiting conversion, with an average outstanding amount of about USD 932.2 billion.

China’s record goods trade surplus of USD 1.19 trillion in 2025 provides a solid foundation for the RMB’s appreciation. SAFE data indicate that in January 2026 banks settled USD 286.3 billion and sold USD 206.5 billion, producing a net settlement surplus of USD 79.8 billion; banks’ client foreign‑related receipts and payments also recorded a surplus of USD 82.1 billion, consistent with net cross‑border capital inflows.

Corporate finance officers caution that while conversions amid appreciation can bolster reported profits, excessive appreciation would compress exporters’ margins; they expect the exchange rate to oscillate within a balanced range once a new equilibrium is reached. Several interviewees added that if appreciation accelerates too rapidly, the central bank could employ measures such as guiding the midpoint rate or adjusting offshore liquidity to provide countercyclical support, although current moves remain consistent with fundamentals and therefore unlikely to prompt immediate external intervention.

Market observers also noted that on February 25 the People’s Bank of China issued two tranches of offshore central bank bills totaling RMB 50 billion via the Hong Kong Monetary Authority’s CMU bond tender platform, an action market participants interpreted as modest support for the RMB and a step toward improving the offshore RMB bond yield curve.

Looking ahead, institutions expect the RMB to face seasonal headwinds in the near term but to retain a medium‑term bias toward strength. The research team led by GF Securities Chief Economist Guo Lei observed that February–March often brings seasonal weakening pressure for the RMB while the dollar tends to firm, yet conversion demand has not been fully exhausted. Given that an estimated 79.8 percent of dollar holdings are currently in a floating loss at prevailing rates, the recent conversion activity may reflect a delayed settlement cycle rather than a one‑off impulse. Under plausible scenarios, institutions project that the RMB will remain relatively firm amid two‑way volatility through the second quarter of 2026 and could stabilize around the 6.85–6.87 range by year‑end.