Morgan Stanley: China FX Outlook
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Morgan Stanley's report analyzes recent trends and the future outlook for China's foreign exchange market, noting that the RMB exchange rate has recently maintained stability within a narrow range of 6.9 to 7.0 against the US dollar, supported by central bank guidance via the daily fixing rate. However, depreciation pressure persists. The firm projects the RMB could depreciate modestly to around 7.2 against the dollar by the second half of 2026. This forecast is driven by widening US-China interest rate differentials and a slowdown in export growth, which has narrowed the monthly trade surplus to $40 billion. China's foreign exchange reserves stood at $3.2 trillion in April 2026, down $20 billion from the beginning of the year but remaining safely above critical thresholds. While capital outflow pressures have increased, the People's Bank of China continues to deploy counter-cyclical factors and offshore central bank bills to manage volatility. The report anticipates the US Federal Reserve will delay rate cuts until the fourth quarter of 2026, keeping the dollar index strong. Although corporate willingness to convert foreign exchange has declined amid depreciation expectations, Morgan Stanley believes RMB depreciation will remain orderly. The central bank possesses sufficient policy tools to prevent a loss of control, and the currency will likely sustain two-way fluctuation with manageable downside risk.