March FX reserves came in below expectations, while the RMB basket remains relatively resilient amid the energy shock

Overview

This report is JPMorgan's event commentary on China's March FX reserves, trade momentum, energy shock, and RMB trend. The report points out that March FX reserves came in far below expectations, possibly indicating that the surge in exports at the start of the year has begun to reverse; at the same time, China has relative buffers against the Middle East energy shock, and the RMB basket remains resilient relative to other non-U.S. currencies.

Core views

The key views are: first, the decline in FX reserves may not be due solely to valuation effects, but could reflect weaker export orders, a higher import bill, or increased capital outflows amid geopolitical uncertainty. Second, the March trade data should be watched closely in the near term to determine the true momentum after the front-loading of exports at the start of the year. Third, the pass-through of higher energy prices to Chinese inflation is more concentrated upstream; PPI deflation may pause, but CPI transmission is limited by price smoothing and the ability of state-owned enterprises to absorb profits. Fourth, upward pressure on the RMB against the U.S. dollar has eased, but the CFETS RMB basket has recovered all of its 2025 depreciation and may continue to strengthen given China's relative resilience to the energy shock.

Analysis framework

The report forms its macro view by decomposing FX reserves, examining high-frequency trade indicators, making current account assumptions, estimating valuation gains and losses, inferring capital flows, tracing energy-price transmission, and comparing RMB baskets. The change in reserves is broken down into the current account, valuation effects, and implied capital flows; the exchange-rate view also references the dollar trend, policy management, the CFETS basket, REER, trade surplus, and geopolitical frictions.

Methodology notes

• balance of payments analysisFX reserve change decomposition

  Break down FX reserve changes into the current account, valuation gains/losses, and implied capital flows.

  The report assumes the current account surplus narrowed to $41.7 billion, valuation losses were $34.7 billion, and then infers implied capital outflows of about $92.7 billion to explain the source of the weaker-than-expected reserves.

• exchange-rate analysisCFETS RMB basket and trade-weighted index

  Assess the RMB's overall strength using the RMB basket rather than only the USD/CNY pair.

  The report argues that upward pressure on the RMB against the U.S. dollar has paused because of the dollar rebound, but the CFETS RMB basket has fully recovered its 2025 depreciation, showing that the RMB still has support relative to other non-U.S. currencies.

• macro transmissionenergy shock inflation transmission framework

  Evaluate the impact of rising oil and gas prices on PPI, CPI, corporate profits, and monetary policy.

  The report believes the energy shock mainly lifts upstream costs, so PPI deflation may pause; CPI pass-through is constrained by price smoothing and state-owned-enterprise profit absorption, meaning inflation will likely rise only modestly, while pressure on profits and real income may still support easier policy.

Asset mapping & comparison

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

• CFETS RMB basket

  Core beneficiary asset

  Strengths

  It has fully recovered the 2025 depreciation; China's lower reliance on oil and gas, larger inventories, and diversified supply support relative resilience.

  Weaknesses

  Upward pressure on the RMB against the U.S. dollar has paused, and gains in the basket have also slowed.

  Comparison

  Better supported than other non-U.S. currencies, but constrained against the dollar by the dollar's tactical strength.

  Risks

  Tariff uncertainty, unclear outcomes from the China-U.S. summit, and a global combination of high inflation and low growth.

• RMB against the U.S. dollar

  Influenced by dollar direction and policy management

  Strengths

  The depreciation bias embedded in RMB pricing has eased.

  Weaknesses

  The lower forward FX risk reserve ratio and the dollar rebound have paused upward pressure against the dollar.

  Comparison

  Weaker than the RMB basket, because the dollar itself is strengthening on defensive qualities and U.S. exceptionalism.

  Risks

  Energy shocks could fuel stagflation trades and raise safe-haven demand for the dollar.

• China export chain

  A macro momentum watch item

  Strengths

  Export and port/shipping data were strong earlier in the year, and manufacturing efficiency plus disinflation still support export competitiveness.

  Weaknesses

  Weaker-than-expected reserves, a softer export orders PMI, and fading Lunar New Year front-loading all point to an export pullback.

  Comparison

  The report thinks export strength is driven more by manufacturing efficiency and disinflation than by an undervalued exchange rate.

  Risks

  If March trade data comes in weaker than expected, it will confirm near-term cooling in momentum.

• Gold reserves

  A central bank reserve allocation asset

  Strengths

  The PBOC accelerated gold purchases in March, with buying above the average level in the second half of 2025.

  Weaknesses

  The pullback in gold prices reduced the value of gold reserves by $45.0 billion.

  Comparison

  The increase in purchase volume did not offset the impact of lower prices on reserve value.

  Risks

  Gold price volatility will continue to affect reserve valuation.

• China PPI-related upstream assets

  Assets sensitive to or benefiting from energy-shock transmission

  Strengths

  Rising energy prices may pause PPI deflation and improve upstream price indicators.

  Weaknesses

  Cost pressure may spread to petrochemicals, fertilizers, some industrial inputs, and transport insurance costs.

  Comparison

  Upstream assets face both pressure and benefits, while downstream sectors with weaker pricing power are more likely to see margins squeezed.

  Risks

  A broader or longer energy disruption, or damage to transport routes or infrastructure.

Key data

• March FX reserves$3,342.1 billionDown $85.7 billion month on month, below J.P. Morgan's forecast of $3,394.0 billion and the market consensus of $3,391.0 billion.
• Streak of reserve growthSeven straight months of growth brokenMarch reserves were significantly weaker than in the previous several months.
• RatingDog export orders PMI50.4Down 3.6 points, giving back the jump seen in February.
• High-frequency port and shipping indicator at the start of the year+16% vs. DecemberIt surged in January-February due to Lunar New Year-related front-loading, then later indicators showed cooling.
• Current account surplus assumption$41.7 billionJPMorgan expects the March current account surplus to narrow.
• Valuation loss$34.7 billionThe move in the dollar index from 97.6 to 100 created a valuation drag.
• Implied capital outflow$92.7 billionUsing the narrower current account surplus assumption implies outflows of about $92.7 billion; another wording in the report refers to roughly $93.0 billion.
• March gold purchases+0.16 million ouncesAbove the 0.03 million ounces per month average in the second half of 2025.
• Value of gold reserves$342.8 billionDespite higher gold purchases, the pullback in gold prices reduced the value of gold reserves by $45.0 billion.
• China's U.S. Treasury holdings$694.4 billionIncreased by $11.0 billion in January 2026.
• Full-year PPI forecast+1.1% y/yRaised from the previous -1.3% as the energy shock may pause PPI deflation.
• Full-year CPI forecast1.0% y/yRaised by 0.3 percentage points, with transmission constrained by policy smoothing and profit absorption.

Impact & implications

For asset allocation, the report implies that the RMB basket may remain relatively strong versus other non-U.S. currencies, while the RMB against the U.S. dollar is temporarily capped by the dollar's defensive strength. Export-related assets should watch whether the March trade data confirms a pullback after the front-loading at the start of the year. The rise in energy prices will primarily affect upstream and midstream costs, may improve PPI readings but compress downstream margins, and force policymakers to balance inflation targets against growth pressure.

Risks

• If the March trade report confirms an export pullback, it could weaken the view on external demand and RMB resilience.
• Higher and more persistent energy prices could amplify cost pressure and reinforce the global combination of low growth and high inflation.
• Tariff uncertainty and unclear outcomes from the U.S.-China presidential summit may increase trade and FX risks.
• Rising implied capital outflows suggest that geopolitical uncertainty may affect cross-border capital flows.
• Although CPI pass-through is limited, pressure on corporate profits and households' real income may still weigh on growth.

What to watch

• The March trade report, especially whether exports fall back noticeably after the early-year surge.
• Whether the RatingDog export orders PMI and high-frequency port and shipping indicators stabilize.
• The extent to which the PBOC RMB fixing deviates and the policy impact of the forward FX risk reserve ratio.
• Whether the CFETS RMB basket and the RMB against the U.S. dollar continue to diverge.
• The transmission of oil prices, natural gas prices, shipping costs, and insurance costs to PPI, CPI, and corporate profits.
• Whether the PBOC eases further in 3Q as growth pressure becomes the dominant concern.