Goldman Sachs Raises Yuan Forecast, Citing Undervaluation of 20%
Yuan Stands Near Strongest Level Against Dollar Since 2023
The Chinese yuan has been deemed more than 20% undervalued against the US dollar by Goldman Sachs Group Inc., with strategists predicting further strengthening over the coming year.
According to Goldman Sachs, the yuan remains below levels justified by China's export strength and external surplus. Strategists, including Kamakshya Trivedi, now anticipate the currency to reach 6.80 in three months, 6.70 in six months, and 6.50 in a year, an increase from previous predictions of 6.85, 6.80, and 6.70. The currency is currently trading at around 6.80.
China's external surplus is approaching unprecedented levels as a percentage of global GDP, reflecting deep levels of export competitiveness and a highly undervalued currency. This has led Goldman Sachs to conclude that currency appreciation is an equilibrium outcome of these forces. The yuan is near its strongest level against the dollar since early 2023, thanks in part to improving US-China ties and weakness in the greenback.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
Other Wall Street banks have also predicted further gains for the yuan. JPMorgan Asset Management has suggested that a "productive" summit between President Donald Trump and Chinese leader Xi Jinping may push the yuan to 6.50. However, Goldman Sachs believes that the case for a stronger renminbi is "more fundamental and longer-lasting."
The bank cited recent People's Bank of China fixings and a rise in exporter conversion ratios as evidence that a gradual but sustained move is still the right baseline. This view is reinforced by the upcoming talks between Trump and Xi, scheduled for Thursday and Friday in Beijing.
Comparison of Predictions
| Bank | 3 Months | 6 Months | 1 Year |
|---|---|---|---|
| Goldman Sachs | 6.80 | 6.70 | 6.50 |
| JPMorgan Asset Management | N/A | N/A | 6.50 |
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
Note: N/A indicates that JPMorgan Asset Management did not provide a specific prediction for the 3-month and 6-month timeframes.
Investor Takeaway
Investors should expect the Chinese yuan to continue strengthening over the coming year.
More in Economy
Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
MoSPI Releases Uniform Norms for DDP Estimates with 2022-23 Base Year
