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EconomyChina Economy

China’s yuan to strengthen to 6.85 per US dollar in first quarter of 2026: Morgan Stanley

Strong export growth and US dollar weakness are expected to bolster the currency, the bank says

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The yuan has appreciated against the US dollar in recent weeks. In late December, the offshore yuan dipped below the benchmark rate of seven against the US dollar. Photo: AFP
Luna Sunin BeijingandRalph Jenningsin Hong Kong

Morgan Stanley has revised its outlook for the yuan, now forecasting it to strengthen to about 6.85 per US dollar in the first quarter of 2026 from a previous call of 7.05, before weakening slightly to about 7.0 by the end of the year.

The bank expects China’s “robust” exports through 2026 to 2027 to provide “a steady tailwind to nominal yuan”, with volumes projected to grow 5 to 6 per cent as the recovery in global demand broadens beyond tech and the country’s price competitiveness improves, Chief China Economist Robin Xing said in a research note.
Morgan Stanley also attributed the revision to a modestly stronger yuan basket and near-term US dollar softness driven by Federal Reserve rate cuts, while cautioning that domestic deflation would constrain the yuan’s sustained appreciation.
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On Friday, China’s central bank set the yuan’s daily midpoint fixing 69 pips stronger, at 7.0128 per dollar – its firmest level since September 30, 2024, marking a more than 15-month high.

The yuan has remained firm against the US dollar over the past month. Morgan Stanley attributed this mainly to “a seasonal increase in corporates’ foreign exchange conversion coupled with a strong trade surplus”, as Chinese exporters typically convert more foreign currency in December ahead of the financial year-end and the Lunar New Year.
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Despite the upwards revision, the bank’s year-end projection of 7.0 is slightly weaker than the consensus of about 6.9. It pointed to “an appreciating dollar in 2H26 [the second half of 2026] and lingering domestic deflation challenges” amid a sluggish Chinese economy.

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