Goldman Sachs Refreshing Forecasts To Reflect Increased Dollar Strength

Goldman Sachs note that “with the Fed appearing to be one of the most determined central banks to tame inflation, we see scope for further upside to USD/Asia in the near-term and we are refreshing our forecasts accordingly. In particular, we forecast USD/CNY to reach CNY6.75, CNY6.60 and CNY6.50 on 3-, 6- and 12-month horizons, respectively (from CNY6.75, CNY6.55 and CNY6.40 previously): we see USD/CNY slightly higher in the near-term on increased Covid cases and USD strength, but still see scope for CNY bullishness on a 6- or 12-month horizon as we move closer to China’s eventual full re-opening which should significantly boost the economic growth outlook. Trade surpluses in China are expected to be persistent in the coming months while the portfolio outflows observed in H1 should gradually fade, providing a more supportive medium-term flow picture in H2. Although the Yuan may benefit from announcements of U.S. tariff reliefs, the impact is likely to be modest in our view. Amongst the low-yield markets, we think the Northeast Asian currencies, such as KRW and TWD, should underperform given their sensitivities to global growth, risk appetite, and equity outflows. We revise our USD/KRW forecasts to KRW1320, KRW1280 and KRW1260 on 3-, 6- and 12-month horizons from KRW1290, KRW1270 and KRW1250 previously, and we revised our USD/TWD forecasts to TWD30.1, TWD29.7, and TWD29.5 (from TWD29.9, TWD29.7 and TWD29.3).”