The USD/CNY is likely to grind even higher before the pair peaks out in 1H24.

We believe the final leg of CNY depreciation is not over yet, although it should now be only moderate in scale. 

The USD/CNY is likely to peak out at 7.50 in 1H24 and start a gradual decline to 7.30 by the end of next year. 

The policy effort of containing CNY depreciation became a permanent factor in PBOC’s policy toolkit. However, extended monetary policy divergence would keep pushing the USD/CNY higher until there is a clear sign of a US Fed pivot. Policy balancing between local rates and FX is likely to be slightly tilted toward lower local rates at the expense of a slightly higher USD/CNY.