Goldman Mark USD/CNY Forecasts Higher, Expect Gradual Recovery For CNY

Goldman Sachs note that “to reflect the changes to our USD forecasts vs other major currencies, we revise our USD/CNY forecasts to CNY6.75, CNY6.55 and CNY6.40, respectively (from CNY6.35, CNY6.30 and CNY6.30 previously) on 3-, 6- and 12-month horizons. These forecast changes imply around a 1.5% weakening of the CNY on trade weighted basis over the next three months, followed by appreciation later on. We think there is scope for slightly further upside in USD/CNY over the near-term, given uncertainties around the local COVID situation and weaker growth outlook. However, over the next six months, we think CNY will resume its appreciation path given that economic activity in China should pick-up in light of policy support (just reiterated at the Politburo meeting), potential easing of domestic anti-pandemic measures after the National Party Congress due October/November, a possible resumption of positive bond flows, and less USD strength than we’ve seen in recent weeks. A gradual recovery and our expectation of border reopening in 2023 should also temper the BOP surplus; as a result, we have adjusted our 12-month forecast higher (though we still see the Yuan on an appreciation path over this horizon).”