Investment bank Goldman Sachs stated the Chinese yuan is at least 20% undervalued against the U.S. dollar, predicting a sustained rise. Analysts cited China’s export strength and large external surplus as fundamental drivers for appreciation. The bank forecasts the yuan, currently at 6.80 per dollar, will reach 6.70 in six months and 6.50 within a year.
Goldman Sachs wrote in a note to clients that the Chinese yuan is at least 20% undervalued against the US dollar. The investment banking giant expects the local currency to keep strengthening over the coming years.
The case for a stronger Chinese yuan is “more fundamental and longer-lasting,” based on China’s export strength and external surplus, wrote Goldman Sachs. The yuan is well below the levels justified by China’s export strength, wrote analysts led by Kamakshya Trivedi.
“China’s external surplus is approaching unprecedented levels as a percentage of global GDP, reflecting deep levels of export competitiveness, and also a highly undervalued currency, with currency appreciation an equilibrium outcome of those forces,” Goldman Sachs strategists wrote. The development indicates that the Chinese yuan has further upside, boosting currency forecasts.
The Chinese yuan is currently at 6.80 against the U.S. dollar. Goldman Sachs predicted that the local currency could rise to 6.70 in six months and hit 6.50 in a year.
The People’s Bank of China is raising exporter conversion ratios, which also suggests that “a gradual but sustained move is still the right baseline,” said Goldman Sachs. Therefore, currency traders can bet on the local currency as its performance could exceed market expectations.
