(May 11): The Chinese yuan is more than 20% undervalued against the US dollar, according to Goldman Sachs Group Inc, which expects the currency to keep strengthening over the coming year.
The yuan remains well below levels justified by China’s export strength and external surplus, strategists including Kamakshya Trivedi said. They now see it at 6.80 in three months, 6.70 in six months and 6.50 in a year, up from 6.85, 6.80 and 6.70 previously. 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 also a highly undervalued currency, with currency appreciation an equilibrium outcome of those forces,” the strategists wrote in a note dated May 8.
The yuan is near its strongest level against the dollar since early 2023, buoyed by improving US-China ties and weakness in the greenback. Other Wall Street banks have also predicted further gains, with JPMorgan Asset Management saying that a “productive” summit between US President Donald Trump and Chinese leader Xi Jinping may be a catalyst that pushes the yuan to 6.50.
Goldman said while the meeting could be important in helping to stabilise trade relations, the case for a stronger renminbi is “more fundamental and longer lasting". Trump and Xi are scheduled for talks Thursday and Friday in Beijing.
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The bank added that the strength in recent People’s Bank of China fixings and a rise in exporter conversion ratios also suggest that “a gradual but sustained move is still the right baseline".
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