Goldman raises forecasts on yuan as US tension eases

By BLOOMBERG

HONG KONG • Goldman Sachs Group Inc boosted its forecasts on China’s yuan to reflect improving sentiment as trade tension between the world’s two largest economies eases.

The currency, which is rebounding from its weakest level in a decade in October, will rally about 0.9% to 6.7 per dollar in a year, Goldman analysts led by Danny Suwanapruti wrote in a note yesterday.

The yuan has risen 1.4% over the past four days, fuelled by hopes that China and the US will reach a trade deal and the US Federal Reserve may halt interest-rate hikes.

“We have increased the probability of a ‘deal’ and ‘status quo’ scenario, while reducing the risk of escalation over our forecast horizon,” the analysts wrote in a note, referring to the trade war.

“Factors likely to limit excessive yuan strength, even in the event of a pause in trade tensions, include a slowing in Chinese growth combined with a weakening in China’s external balance.”

Goldman is joining a growing camp of yuan bulls — Standard Chartered plc sees the currency ending this year at 6.65, helped by foreign inflows, and Citigroup Inc entered trades betting the currency would rise to 6.6.

Some are cautious over the yuan’s advance. The currency faces “correction risk” as intensifying concerns over China’s economic slowdown will likely weaken sentiment again, Ken Cheung, a foreign-exchange strategist at Mizuho Bank Ltd, wrote in a note yesterday.

The yuan pared a gain of 0.48% to trade 0.05% higher at 6.7630 per dollar as of 5:26pm in Shanghai yesterday.

Data released yesterday showed China’s exports unexpectedly slumped in December. The currency was at its highest level since July in the morning, ahead of the data.