Goldman: A Slightly Stronger CNY Next Year On The Back Of Improved Growth Sentiment

Goldman Sachs note that “the CNY has depreciated by over 9% vs. USD since early ‘22 on depressed sentiment towards growth due to the zero Covid policy and widening interest rate differentials, despite solid goods trade balances. Looking forward into ‘23, factors that point to the appreciation of CNY include better growth expectations due to reopening, while factors that point to depreciation include a narrower goods trade surplus, wider services trade deficit, and our expectation of a still widening interest rate differential.”

• “Besides fundamental drivers of the exchange rate, policymakers’ guidance could also affect cross-border flows and thus the exchange rate path. For example, when policymakers leaned against one-way appreciation/depreciation of the currency, exporters demonstrated less speculative behaviour when deciding whether to convert their proceeds back to the RMB.”
• “Putting everything together, our analysis suggests that for 2023 favourable factors such as improved growth expectations might still outweigh unfavourable ones such as deterioration in goods and services trade balances, and we continue to expect small appreciation of the USD/CNY over the 12-month horizon to CNY6.90.”