Usdcny Will Drop Goldman Sachs

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Usdcny Will Drop Goldman Sachs

USD/CNY Will Drop To 6.50 - Goldman Sachs

Goldman Sachs has issued a 12-month forecast for the USD/CNY. According to them, the pair will fall all the way to 6.50 over 12 months.

This forecast is issued at a time when the CNY is already gaining ground against the US Dollar. In fact, the CNY already gained 5.7% against the greenback last year.

Goldman Is Bullish On Chinese Economy

Goldman continues to hold a bullish outlook for the Chinese economy. They think that the Yuan appreciation is not just based on short-term optimism. Instead, it is driven by long-term fundamentals that are not going anywhere soon.

The external surplus of China is already at record-high levels. This clearly highlights that China remains highly competitive when it comes to global exports. On the other hand, the Chinese currency is still highly undervalued.

In the short term, the high energy prices will surely have an impact on China's trade balance. But we must also understand that China is now in a very good position when it comes to renewable energy. It is also working on strengthening its own clean technology supply chains.

Despite the CNY gains in the past year, the currency is still greatly undervalued. Goldman believes that the CNY is still undervalued by around 20% against the US Dollar.

In simple words, the USD/CNY pair has the potential to drop by 20% or more in the long run. In 3 months, the USD/CNY will decline to 6.80. In 6 months, the pair will further decline to 6.70. Over the 12-month horizon, the bank thinks the pair is headed towards 6.50.

If we look at the US side, the trade imbalance just continues to rise. Also, the US economy now can't function without raising the debt ceiling every few years. This makes it clear that the US Dollar is facing threats on multiple levels.

One thing that could support the US Dollar against the CNY in the next 12 months is unexpected rate hikes by the US Federal Reserve.

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