USD/CNH: 7.60 in 12 months

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USD/CNH will continue to move higher.

Financial stress is on the rise, raising renewed concerns about whether China is heading for a deeper financial and economic crisis. While we believe the risk of this happening is rising (25% probability), our base case remains that China has the tools to avoid this outcome and will use them if necessary. However, we have revised down our growth forecast for China to 4.8% this year and 4.2% in 2024 due to recent softer data and rising financial stress.

We have raised our USD/CNH and EUR/CNH forecasts given the new weak growth outlook and rising risks. We now expect USD/CNH to fall back to 7.60 in December, up from 7.40 previously.