Goldman Sachs: Hold Longs Into Election, Then Revisit

Goldman Sachs suggest that "because US foreign policy is primarily controlled by the executive branch, a pivot on US-China relations would only require Democrats to take control of the White House. As a result, the we believe the Yuan's strong performance over the past month likely reflects, at least in part, markets increasingly pricing in a Biden victory. We think this trade has slightly more to go, and look for USD/CNY to reach 6.50-6.60. However, at that point it may become appropriate to step back and reassess the outlook for the currency. First, the trade-weighted Yuan has gained substantially since this summer, and Chinese policymakers may look for ways to slow appreciation (recent easing of reserve requirements on FX derivative transactions and expanding QDII quotas both point in this direction; we see the elimination of the countercyclical factor as a move toward FX flexibility, with little directional impact on CNY). Second, the specifics of Biden's potential approach to China relations are still unknown, and President Trump could take actions on bilateral issues in the lame-duck session. The bottom line: fundamentals for the Yuan remain favorable, but the short-run outlook will become murkier after the election."