Overview
Morgan Stanley's mid-year outlook says China’s central bank may allow modest yuan appreciation if export strength endures, with the investment bank's economists led by Robin Xing setting out a near-term and medium-term path for USD/CNY.
Forecasts and trajectory
The bank expects USD/CNY could move toward 6.70 in the near term and then reverse modestly to around 6.80 by mid-2027, according to the report from economists led by Robin Xing. Morgan Stanley also projects the exchange rate to reach 6.75 by the end of 2026 - a revision from an earlier target of 7.0.
Policy constraints and drivers
Economists at Morgan Stanley say a sharp appreciation beyond levels supported by fundamentals appears unlikely. They note that the People’s Bank of China remains mindful of weak domestic demand and price dynamics, and therefore is unlikely to rely on currency appreciation as the principal instrument for correcting structural growth imbalances.
At the same time, the bank highlights that USD/CNY will likely remain influenced by broader dollar moves, rather than only by bilateral policy choices, implying that global dollar strength or weakness will play a central role in the pair’s trajectory.
Broader currency and economic context
Morgan Stanley sees room for 3% to 4% appreciation in the CFETS Index by the end of 2027. The CFETS Index measures the yuan against a basket of trading-partner currencies. The bank attributes part of the supportive backdrop to China’s supply-chain competitiveness amid what it describes as an Asia-led industrial cycle driven by AI-related investment and energy transition.
Growth and inflation assumptions
Reflecting its outlook, Morgan Stanley raised its real GDP growth forecasts for China to 4.8% in 2026 and 4.7% in 2027, each up by 0.1 percentage point from prior assumptions. The bank also lifted its GDP deflator forecast by 0.3 percentage point to 0.5%.
Implications
- FX markets may see downward pressure on USD/CNY if export momentum persists.
- Trade-exposed sectors and supply-chain linked industries could benefit from strengthened competitiveness.
- Monetary policy makers are unlikely to use exchange rate moves as the main lever to address domestic demand and inflation issues.