JPMorgan expects the renminbi to remain a relative safe haven, with USD/CNY seen at 6.70 in 4Q

Overview

This is JPMorgan's mid-year 2026 outlook for China local markets. The core judgment is that CNY FX and CNY rates exhibited relative safe-haven characteristics in the first half of 2026 amid rising global volatility; entering the second half, the renminbi's appreciation trend is expected to continue but at a slower pace, while China government bond yields are likely to remain range-bound.

Core views

The report maintains a constructive view on CNY FX, arguing that even with weak domestic demand and the possibility of a stronger USD cycle, the renminbi is still supported by strong exports, corporate FX conversion, foreign inflows, and managed support from the PBoC. It remains neutral on CNY rates because yield valuations are slightly rich, but abundant domestic liquidity, deposit growth exceeding loan growth, and continued inflows into bonds and wealth-management products still support duration demand.

Analysis framework

The report assesses the second-half path for CNY FX and rates by combining exchange-rate fixing, yield differentials, market-implied China risk premium, export prices and export surprises, SAFE settlement and sales data, the services trade balance, foreign inflows into equities and bonds, PBoC liquidity operations, money-market rates, bond supply, and a 10-year China government bond fair value model.

Methodology notes

• FX strategyBalance of payments and policy management framework

  Assess the strength of renminbi support through the trade surplus, corporate FX conversion, the services trade balance, foreign inflows, and PBoC fixing behavior.

  The report argues that the renminbi is not fully explained by the China-US yield spread or the domestic cycle; a trade-driven balance of payments, a managed capital account, and policy guidance weaken the reversal signals from traditional yield-spread models.

• Rates strategyLiquidity and duration demand framework

  Assess the yield range through liquidity conditions, deposit and loan growth, flows into wealth-management and bond funds, bond supply, and fair value models.

  The report argues that loose liquidity and weak credit demand drive domestic investors to chase yield, supporting bond duration; however, the 10-year government bond yield is slightly below model fair value, creating some short-term upside risk for yields.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CNY FX

  bullish

  Strengths

  Export resilience, continued corporate USD selling, a narrowing services trade deficit, improving foreign inflows into equities, and supportive PBoC fixings together provide support.

  Weaknesses

  The China-US yield spread remains wide, the renminbi's low-yield nature reduces its global investment appeal, and domestic cyclical data are weak.

  Comparison

  The report sees similarities with the 2021 appreciation cycle in terms of a strong balance of payments, but notes that domestic fundamentals are weaker and the external yield-spread environment is less favorable than in 2021.

  Risks

  If the USD strengthens further, the PBoC becomes less tolerant of renminbi appreciation, or domestic confidence shocks intensify, the renminbi's appreciation trend could slow or reverse.

• USD/CNH options

  an instrument to express a short USD/CNH view

  Strengths

  Options can maintain exposure to renminbi appreciation while controlling downside risk; the report specifically mentions a 3-month USD/CNH 6.75 put option.

  Weaknesses

  If the pace of renminbi appreciation is controlled or the USD rebounds, the option may suffer time-value decay.

  Comparison

  Compared with going long the renminbi outright in spot, options are better suited to expressing a directional view in an environment where policy manages the pace of appreciation and total returns are constrained.

  Risks

  Implied volatility, time to maturity, the pace of daily fixing, and a rebound in the USD index will all affect strategy returns.

• 10-year China government bond

  neutral

  Strengths

  Weak credit demand, strong deposit growth, and inflows into wealth-management and bond funds support duration demand, while performance has shown low correlation during global rates sell-offs.

  Weaknesses

  Yields are below estimated fair value, making valuations slightly rich; government bond supply may increase in the second half.

  Comparison

  The report argues that although Chinese bond yields are lower than some high-yield emerging markets, as a low-yield market they still delivered about 5% year-to-date returns and outperformed major developed-market rates and regional Asian peers.

  Risks

  If fiscal spending lifts investment, bond supply pressure exceeds expectations, or the PBoC steps up liquidity withdrawal, yields could rise.

Key data

• USD/CNY forecastlatest 6.80; 3Q26 at 6.70; 4Q26 at 6.70; 1Q27 at 6.75; 2Q27 at 6.80This corresponds to the report's base-case path of continued renminbi strength followed by a moderate pullback.
• CNY TWI forecastlatest 102.7; 3Q26 at 104.0; 4Q26 at 105.0; 1Q27 at 104.5; 2Q27 at 104.0The report believes the trade-weighted renminbi still has room to appreciate further, though it remains below prior cycle highs.
• 10-year China government bond yield forecastlatest 1.74%; 3Q26 at 1.80%; 4Q26 at 1.80%; 1Q27 at 1.70%; 2Q27 at 1.70%The report maintains a neutral view on CNY rates and expects yields to be broadly range-bound.
• Corporate FX settlement and salesChinese corporates have net sold about USD 543 billion since 2Q25Corporate USD selling is an important basis for the report's view that the renminbi has structural support.
• Estimated excess corporate USD savingsabout USD 550 billion to USD 915 billionThe report believes that even partial conversion could continue to create appreciation pressure on the renminbi.
• Total return of Chinese government bondsabout 5% year to date in 2026Returns came from the combined contribution of renminbi appreciation and declining bond yields.
• 10-year China government bond fair valueabout 1.85%The report says the current 10-year yield is about 10bp below estimated fair value, making valuations slightly rich.
• Rate cuts implied by the forward curveabout 5bp over the coming monthsThe report believes the market's pricing of further PBoC easing is relatively mild and reasonable.

Impact & implications

If the report's view plays out, renminbi assets will still offer defensive and diversification value in a globally volatile environment. In FX strategy, long renminbi positions can be expressed through USD/CNH put options or higher-beta CNH crosses; in rates strategy, with valuations not cheap and supply potentially rising, the risk-reward of chasing duration is limited, making it more appropriate to stay neutral and wait for range opportunities.

Risks

• A further strengthening of the USD index in the second half could limit the renminbi's upside against the dollar.
• A persistently wide or widening China-US yield spread remains a structural headwind for the renminbi.
• The PBoC's tolerance for renminbi appreciation is not unlimited; if the trade-weighted renminbi deviates excessively from trend, policy restraint may emerge.
• If domestic demand continues to weaken and turns into a confidence shock, it could undermine risk appetite support for the renminbi and Chinese assets.
• A rebound in bond supply and seasonal liquidity tightening in the second half could put upward pressure on CNY rates.
• If domestic investment and consumption recover significantly, strong duration demand may fade, creating rebound risk for bond yields.

What to watch

• The PBoC's daily central parity fixing, deviations between spot and fixing, and signs of smoothing by agent banks.
• Whether USD/CNH approaches or breaks the 6.70 path, and whether CNY TWI continues to rise toward the 105 area.
• Corporate FX settlement and sales and SAFE data, especially whether corporates continue to be net USD sellers.
• China export prices, export surprises, and technology-related export performance.
• The pace of foreign inflows into A-shares and Chinese bonds, especially whether global active funds reduce their underweight to China.
• The impact of high-level diplomatic activity and potential China-US leader meetings on renminbi policy preferences.
• PBoC liquidity injections/withdrawals and whether overnight repo rates remain stable near the policy rate.
• The pace of net government bond issuance, changes in the size of wealth-management and bond funds, and whether the 10-year China government bond returns toward the 1.85% fair value area.