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Goldman Sachs: China’s yuan still undervalued, has room to strengthen

China’s yuan is still estimated to be more than 20% undervalued against the US dollar, according to Goldman Sachs Group Inc.

The investment bank also expects the Chinese currency to continue strengthening over the next year, citing Bloomberg.

Goldman believes the yuan remains significantly below its fair value, given China’s strong exports and sizeable external surplus.

A team of analysts led by Kamakshya Trivedi now forecasts the yuan at 6.80 per USD in three months, 6.70 in six months, and 6.50 in one year.

The revised outlook is more bullish than Goldman’s previous forecasts of 6.85, 6.80, and 6.70, respectively. The yuan is currently trading around 6.80 per USD.

In a note dated 8 May, the analysts said China’s external surplus is now approaching historic highs relative to global GDP.

That, they argued, reflects the country’s strong export competitiveness and suggests the yuan remains undervalued.

According to Goldman, currency appreciation is a natural consequence of such conditions.

The yuan is currently trading near its strongest level against the dollar since early 2023.

The rally has been supported by improving US-China relations and a weakening US dollar.

Other Wall Street investment firms have also projected further upside for the yuan.

JPMorgan Asset Management, for example, said a productive meeting between President Donald Trump and President Xi Jinping could act as a catalyst to push the yuan towards 6.50.

Goldman added that while the meeting between the two leaders is important for stabilising trade relations, the main drivers of yuan appreciation are more fundamental and long term.

Trump and Xi are scheduled to meet in Beijing on Thursday and Friday.

The bank also noted that stronger daily yuan fixings by the People’s Bank of China, along with rising foreign exchange conversions by exporters, indicate that the yuan’s appreciation trend is likely to continue gradually but steadily.