Morgan Stanley: Strong Exports May Lead to Lower USD/CNY

Morgan Stanley's Revised Yuan Forecast

Morgan Stanley has indicated that China's central bank might permit a modest appreciation of the yuan if the country's strong export performance persists. The bank's economists, led by Robin Xing, presented this view in their mid-year outlook, suggesting a potential shift in currency dynamics.

Detailed Currency and Economic Projections

The report forecasts the USD/CNY exchange rate could move towards 6.70 in the near term before a modest reversal to approximately 6.80 by mid-2027. The bank has also revised its end-2026 target for the pair to 6.75, down from a previous forecast of 7. The outlook is supported by China’s robust supply chain competitiveness, fueled by an Asia-led industrial cycle in AI-related investment and energy transition. Furthermore, Morgan Stanley anticipates a 3% to 4% appreciation in the CFETS Index, which measures the yuan against a basket of currencies, by the end of 2027.

Broader Economic Impact and Central Bank Stance

Despite the positive export outlook, the People’s Bank of China is expected to remain cautious. Soft domestic demand and price dynamics mean the central bank is unlikely to use currency appreciation as its main tool to correct structural growth imbalances. The USD/CNY pair will likely continue to be influenced by broader U.S. dollar movements. In line with this analysis, Morgan Stanley has also raised its real GDP growth forecasts for China to 4.8% for 2026 and 4.7% for 2027.

Conclusion

In summary, Morgan Stanley's forecast points to potential yuan strength driven by sustained export performance. However, the pace of appreciation will be managed carefully by the People's Bank of China, with the U.S. dollar's broader trend remaining a key factor for the USD/CNY exchange rate.

FAQ

Q: What is Morgan Stanley's new USD/CNY forecast?
A: The bank forecasts USD/CNY could move toward 6.70 in the near term and has revised its end-2026 target to 6.75 from 7.

Q: What is driving this potential yuan appreciation?
A: The primary driver is China's strong export performance, supported by its supply chain competitiveness in high-growth sectors like AI and energy transition.

Source: Investing.com