FACTBOX-Analysts expect yuan to strengthen in 2026, but gains limited

SHANGHAI, Feb 3 (Reuters) - Major global investment houses broadly expect the Chinese yuan to appreciate after it broke through the psychologically important 7-per-dollar level late last year, though they expect very limited room for additional gains.

China's yuan CNY=CFXS strengthened 4.5% against the dollar last year, snapping three consecutive years of losses and marking the best annual performance since 2020. It last traded at 6.9381 per dollar on Tuesday.

While the Chinese currency largely faced depreciation pressure in recent years, prompting authorities to guard against capital outflow risks, the central bank also signalled reluctance toward overly rapid gains.

Here is a summary of some forecasts for the Chinese currency:

The average year-end forecast from the 13 investment banks showed that yuan will trade at 6.92 per dollar.

An earlier version of the forecasts published in early December showed that investment banks expect the yuan to rise past the key 7 level in 2026.

KEY QUOTES:

*ANZ

"We have been positive on the outlook for the yuan and one of our top FX trade recommendations for 2026 was to go long CNH outright.

"The move in CNY past the 7 level occurred sooner than we were expecting - our forecast had it happening in Q3 2026. We still see further yuan appreciation as the currency remains undervalued."

*PANTHEON MACROECONOMICS

"We are revising our RMB forecast to show 6.85 by the end of this year.

"I think the exceptional weakness in the dollar and our house expectations of a higher chance of a Fed cut in March facilitated the move. Other factors such as repatriation of the USD piled outside of China because of trading activity will continue to be a driving force to push RMB to the stronger end, but the PBOC will make sure the appreciation is on a gradual measured pace."

*SOCIETE GENERALE

"Sustained yuan appreciation below 7.0 throughout 2026 is hard to justify. U.S. growth momentum is expected to accelerate in 2H26, outpacing China's, and diverging monetary policy will weigh on the yuan as USD/CNY has historically tracked yield differentials. Unlike other North Asian economies, the PBOC will remain accommodative throughout the year, which is less favourable for the currency."

*J.P. MORGAN ASSET MANAGEMENT

"A strong yuan might attract capital inflow and support domestic asset returns, which could boost sentiment and benefit domestic demand. On the other hand, as domestic demand stays weak, China still relies on external demand for the short term. Therefore the PBOC might have to balance between the considerations for capital market and export competitiveness. Yuan is likely to remain rangebound around 7."

STANDARD CHARTERED

"The pace of appreciation is likely to slow in H1 given the turn in seasonality and the state media's warnings against the 'one-way appreciation bet'. However, fundamental drivers – including likely continued strong exports, a narrowing USD versus CNY interest rate gap, and renewed Renminbi internationalisation efforts – should support a stronger CNY versus USD this year."

BARCLAYS

"A stronger currency is not a panacea for China's economy or a means to end deflation. It could exacerbate deflationary pressures via lower import costs – albeit amid overall lower import demand – even as it reduces some of the deflationary impulse externally, via higher export prices.

"We doubt that a stronger CNY would help boost aggregate spending. Instead, what China needs, in our view, is stronger stimulus measures aimed at households to boost aggregate demand."

MORGAN STANLEY

"We think a stronger currency will be the result of economic rebalancing and reflation through structural reforms and housing market stabilization - rather than the cause.

"When the economy is still grappling with deflationary pressures, a rapid currency appreciation could be counterproductive. It could weaken the nominal income base of the tradable sector and reinforce subdued price expectations by lowering import prices further. As such, engineering a strong currency prematurely may hinder, rather than help, the rebalancing process."

GOLDMAN SACHS

"Over the past couple of months, the pace of appreciation has exceeded our expectations and that is even before the sharp move lower in the broad dollar in the past few days. The stronger CNY fixes and the faster move appears to be blessed by policymakers: PBOC Deputy Governor Zou Lan recently commented that the PBOC would like to maintain flexibility in the CNY exchange rate.

"In our view, the change in tone against the backdrop of recent CNY appreciation suggests greater tolerance for further CNY strength."