JPMorgan lowers the USD/CNY target to 6.70, reinforcing its medium-term bullish RMB view
AI summary card
JPMorgan lowers the USD/CNY target to 6.70, reinforcing its medium-term bullish RMB view
The report argues that although China’s exports and equity and bond flows are facing short-term pressure from the Middle East conflict and global risk sentiment, corporate USD selling, expanding RMB settlement, and safe-haven narratives still support medium-term RMB strength.
- China’s March exports were weaker than expected, and foreign investors turned net sellers of Chinese equities after five consecutive months of buying, with estimated northbound equity net outflows of about USD 7 billion.
- Foreign investors sold about USD 19 billion of Chinese bonds in March, including around USD 11 billion of NCD outflows, around USD 8 billion of CGB outflows, and around USD 2 billion of policy bank bond outflows.
- Chinese corporates’ USD selling momentum continued, with the total FX conversion ratio at 71.0% in March and the net FX conversion ratio at 7.7 percentage points, both the highest March readings since 2020.
- The report estimates that Chinese corporates may have accumulated USD 600-900 billion in USD savings during 2022-2025, providing a potential source for further USD selling and RMB support.
- The share of commodity-related RMB settlement in RMB-denominated goods trade rose from about 5% in 2020 to about 20% in 2023, while RMB-denominated goods trade flows accounted for nearly 30%.
Report interpretation
Overview
This is a China local markets weekly report from JPMorgan’s global markets strategy team, with the core theme of lowering the medium-term USD/CNY target to 6.70. The report acknowledges that the Middle East conflict and global market volatility have affected China’s exports and equity and bond flows, but argues that the RMB has remained relatively resilient through the shock and that its medium-term structural support has further strengthened.
Core views
The report’s core view is that the RMB is not fully immune to external shocks, but the medium-term bullish case has held up through market turbulence. Continued corporate USD selling, exporters drawing on past USD savings, the RMB’s relative stability during the conflict, and the rising use of RMB in commodities and cross-border trade all support RMB demand. JPMorgan therefore lowers its USD/CNY forecast and expects it to test 6.70 over the coming quarters; however, the appreciation path may not be linear, and USD/CNH still faces short-term upside squeeze risk due to deviations between the spot rate and the fixing.
Analysis framework
The report combines macro data, cross-border capital flows, SAFE FX settlement data, trade balances, RMB settlement ratios, central bank behavior, and the FX forecast table in its assessment. The analytical focus is not a single spot level, but the combined impact of USD supply, corporate balance sheets, the RMB internationalization narrative, and policy pace management on the exchange-rate direction.
Methodology notes
Uses the total FX conversion ratio, net FX conversion ratio, and the scale of trade-related net USD selling to judge corporates’ true preference between USD and RMB.
The gap in March between corporates’ net USD selling and trade income suggests that exporters may not only be converting newly earned USD income but also running down previously accumulated USD savings.
Uses northbound equity flows, foreign holdings of Chinese bonds, and EM fund flows to assess short-term risk-sentiment shocks.
The report views foreign outflows from Chinese equities and bonds as short-term noise and part of the risk backdrop, but not enough to overturn the medium-term bullish RMB thesis.
Assesses marginal demand for the RMB as a transaction currency through the share of RMB commodity settlement and the share of RMB-denominated goods trade.
The Middle East conflict, the narrative of petrodollar fragmentation, and the rise in RMB settlement for energy trade are seen as incremental support for medium- to long-term RMB demand.
Distinguishes between the central bank’s pace management of RMB appreciation and the setting of an explicit exchange-rate defense line.
The report believes that the reappearance of resistance through the countercyclical factor and fixing management more likely reflects management of the pace of appreciation rather than an attempt to prevent further RMB gains.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- USD/CNYCore forecast asset
- Strengths
- Medium-term support for RMB appreciation has strengthened, and the target has been lowered to 6.70.
- Weaknesses
- The appreciation path may not be linear, and the central bank may manage the pace through the fixing and the countercyclical factor.
- Comparison
- Relative to the old forecast of 6.85, the new forecast reflects a stronger RMB view.
- Risks
- An escalation of external conflicts, a further weakening in exports, a USD rebound, or policy pace management could delay achievement of the target.
- USD/CNHShort-term trading expression
- Strengths
- Still inclined to short USD on rallies over the medium term.
- Weaknesses
- In the short term, the gap between spot and fixing is large, creating upside squeeze risk.
- Comparison
- Compared with the clearer medium-term direction in USD/CNY, USD/CNH carries higher short-term tactical risk.
- Risks
- Offshore liquidity, a USD rebound, and fixing management could trigger short-term volatility.
- CNY FXGBI-EM model portfolio asset
- Strengths
- Corporate USD selling and the RMB internationalization narrative support medium-term performance.
- Weaknesses
- The MW rating remains in the portfolio table, indicating continued caution in position expression.
- Comparison
- Directionally stronger than EM assets hit by risk-sentiment shocks, but the rating does not indicate a clear overweight.
- Risks
- A sell-off in global risk assets and EM outflows could weigh on performance.
- CNY bondsChina local bond asset
- Strengths
- RMB stability may improve medium-term foreign investor confidence.
- Weaknesses
- Foreign bond outflows accelerated in March, with NCDs, CGBs, and policy bank bonds all being sold.
- Comparison
- Fund-flow performance is weaker than the RMB exchange rate itself.
- Risks
- Rate differentials, FX expectations, and changes in foreign investor risk appetite may continue to drive outflows.
- Chinese equitiesRisk-sentiment and flow-monitoring asset
- Strengths
- Not the main recommended direction of this report.
- Weaknesses
- Foreign investors turned net sellers after five consecutive months of buying, with estimated net outflows of about USD 7 billion in March.
- Comparison
- Equity flows are more directly affected by the global risk sell-off.
- Risks
- Slowing exports, energy prices, supply bottlenecks, and broader EM equity outflows may continue to create pressure.
Key data
- New USD/CNY forecast2Q26 6.80, 3Q26 6.75, 4Q26 6.70, 1Q27 6.70The old forecast was 6.85 for each quarter.
- March foreign flow into Chinese equitiesAbout -USD 7 billionForeign investors turned net sellers after five consecutive months of buying, marking the largest monthly outflow since 2023.
- March foreign flow into Chinese bondsAbout -USD 19 billionIncluding about -USD 11 billion in NCDs, about -USD 8 billion in CGBs, and about -USD 2 billion in policy bank bonds.
- March total FX conversion ratio71.0%The highest March reading since 2020.
- March net FX conversion ratio7.7 percentage pointsAlso the highest March reading since 2020.
- March trade-related net USD sellingAbout USD 60 billionRoughly flat versus February, even as the trade surplus moderated.
- Potential accumulated corporate USD savingsAbout USD 600-900 billionJPMorgan estimated range covering 2022-2025.
- Share of commodity RMB settlementFrom about 5% to about 20%Refers to the share of commodity-related RMB settlement in RMB-denominated goods trade during 2020-2023.
- Share of RMB-denominated goods trade flowsNearly 30%It was about 12% in 2018 and has risen steadily in recent years.
Impact & implications
From an investment perspective, the report supports a medium-term long RMB position and a lower USD/CNY direction, but does not encourage mechanically chasing a linear appreciation path. In the short term, because of PBoC fixing management and spot-fixing deviations, USD/CNH may experience upside squeezes, so the strategy stays temporarily neutral and waits to rebuild USD shorts after a USD rebound. For China local assets, short-term outflows from equities and bonds form part of the risk backdrop, but corporate FX conversion and the expansion of RMB settlement are more supportive for the FX direction.
Risks
- The Middle East conflict continues to disrupt global markets, causing higher energy prices, supply bottlenecks, and damage to external demand.
- China’s exports weaken further than expected, reducing incremental trade surpluses and USD income.
- Foreign investors continue selling Chinese equities and bonds, weighing on market sentiment.
- PBoC management of the pace of RMB appreciation is stronger than expected, limiting the speed of USD/CNY downside.
- USD/CNH experiences short-term upside squeezes due to spot-fixing deviations, offshore liquidity conditions, or a USD rebound.
- There is uncertainty over the speed and scope of expanding RMB usage in global commodity trade.
What to watch
- SAFE FX settlement data, especially the total FX conversion ratio, net FX conversion ratio, and the scale of trade-related USD selling.
- Whether exporters continue to draw on previously accumulated USD savings.
- Whether USD/CNY tests 6.70 over the coming quarters.
- Signals from the PBoC fixing, countercyclical factor, and management of the pace of appreciation.
- Whether USD/CNH experiences short-term squeezes due to deviations from the fixing.
- Follow-up changes in the share of commodity RMB settlement and RMB-denominated goods trade.
- Monthly foreign flows into Chinese equities, NCDs, CGBs, and policy bank bonds.