Goldman Sachs has revised up its outlook for the Chinese yuan, saying the currency remains markedly undervalued even after recent gains and is expected to move higher as a result of China’s large external surplus and export competitiveness.
The bank’s analysts stressed that the case for a stronger yuan goes beyond optimism around a possible meeting between U.S. President Donald Trump and Chinese President Xi Jinping next week. In their note they wrote:
“Markets are looking towards U.S.-China trade negotiations as a catalyst, but we think the case for a stronger renminbi is more fundamental and longer-lasting,” the analysts wrote.
Using its valuation models, Goldman estimates the yuan remains more than 20% undervalued against the U.S. dollar. Reflecting that view, the bank adjusted its forecasts for the onshore USD/CNY rate to 6.80 in three months, 6.70 in six months and 6.50 in 12 months. These projections replace earlier forecasts of 6.85, 6.80 and 6.70, respectively.
Goldman said China’s external surplus is approaching unprecedented levels as a share of global GDP, a dynamic the bank attributes to both robust export competitiveness and the currency’s undervaluation. Official data released on Saturday showed Chinese exports rose 14.1% in April, a gain Goldman links in part to demand for semiconductor equipment.
At the same time, the bank acknowledged several short-term headwinds that could temper the trade balance. It pointed to higher energy prices tied to the Iran conflict and slower growth among China’s trading partners as factors that could weigh on trade flows in the near term.
Looking further ahead, Goldman said the global tilt toward energy security and investment in renewables is likely to play to China’s strengths over time because of its dominance in clean energy supply chains.
The bank’s updated projections and underlying analysis signal expectations for a lower USD/CNY exchange rate over the coming year, driven by structural trade and supply-chain factors rather than only by short-term geopolitical events.