GS: Yuan to strengthen further, PBOC jumps ahead

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by Chris Becker

Goldman Sachs are out with a Yuan forecast this morning that maybe a little late, and a little optimistic particularly on the trade risk:

Via Bloomberg:

“While talks can still falter and a deal that rolls back existing tariffs and removes trade uncertainty feels like a high bar, the risk of another escalation in tariffs looks to have declined along with U.S. stock prices,” strategists including New York-based Zach Pandl wrote in a report.

GS are looking at a short term forecast of 6.8, same for 6 months and about 6.7 in a year or so, down from nearly 7 prior. Given that offshore trading in Yuan is almost at the 12 month forecast level already, with a big move last week, this note seems already priced in.

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The weekly chart of USDCNH tells the story very clearly. It all starts in January 2018, when Trump imposed the first round of tariffs on China, then escalated the trade war with another series that started in July followed by a third in September; although these were dialed back in December as both parties agreed to a 90 day suspension.

Overshadowed by the shutdown of the US government by Trump, the latest round of trade talks will decide the future short term strength of the Yuan – a stronger currency not necessarily good for exports, but providing a better basis for capital inflows. Watch the 6.70 level closely!

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Update: the PBOC did another strengthening fix of the onshore Yuan today, bringing it down to 6.7560 from 6.79 even on Friday. Offshore Yuan immediately traded at 6.74 or so: