📝Revising Our USD/CNY Target to 7.40 From 7.25: J.P. Morgan FX Strategy

The PBOC managed to keep USD/CNY stable before the Golden Week holidays, despite solid USD strength. To defend RMB against one-side depreciation, the PBOC have been on the move with strong counter-cyclical factor in the CNY fixing, FX RRR cut, stronger window guidance such as restricting corporates' bulk dollar purchases, limiting onshore brokers' proprietary FX trading, ordering state banks to refrain from immediately squaring FX positions in USD sales to clients, etc.

A PBOC official recently mentioned RMB/USD is not the sole focus of the RMB FX policy and more attention should be paid to the RMB basket, which has been stable and may indicate room for the PBOC to scale back defensive measures and tolerate higher ranges in USD/CNY should DXY strength have legs. Cyclical conditions matter as policy makers may want to wait for peak China pessimism before stepping away from strong FX smoothing. Our strategists have raised their 6m USD/CNY (4Q23) target to 7.40 from 7.25. - J.P. Morgan FX Strategy