Goldman Sachs Forecasts 25% Undervaluation of Chinese Yuan

Goldman Sachs forecasts that the Chinese yuan is undervalued by 20% to 25% and predicts the currency will strengthen from approximately 6.69 to 6.40 per dollar within one year. Strategist Kamakshya Trivedi identifies this appreciation as one of the most underpriced scenarios in the global foreign exchange market.

The projection is driven by China's trade surplus, which exceeded $800 billion during the first eight months of the year. While the Government of China rejects accusations from trading partners, including European nations, that it artificially weakens the currency, the bank suggests Beijing may now be more comfortable with a stronger yuan to maintain stable trade ties and support the currency's internationalization.

A gradual rise in the yuan would likely increase returns on Chinese assets and benefit other Asian currencies linked to China's trade cycle. However, the bank notes that a strong U.S. dollar, supported by geopolitical tensions and inflation, remains a primary risk to this predicted ascent.