Kamakshya Trivedi, Goldman Sachs' global head for FX, rates and emerging-markets strategy research, says traders are underpricing the chance that China's currency strengthens. "People underestimate how far this can move," he said. "At every stage as we've shifted the forecast stronger, I think I've been surprised by the extent to which consensus and forward markets still haven't caught up to that."
Goldman estimates the yuan is about 20% to 25% undervalued, an assessment Trivedi described as "conservative." He said the gap would look "much bigger" once China's current account and broader external balances are taken into account. With a swelling trade surplus, he added, the case for appreciation is getting firmer.
Goldman projects the yuan at 6.40 per dollar in a year, from roughly 6.69 now, and its fair-value work suggests "a six handle" is a plausible destination later on. "Our view is very simple: we think it will be a gradual process, but it's going to be sustained," Trivedi said. The last time the currency hovered near 6 per dollar was early 2014, a period marked by rapid hot money inflows.
Beijing has let the tightly managed currency climb against most major peers, and it has reached a four-year high versus the dollar. That leaves it among the few currencies positioned for more persistent gains even as the greenback has bounced on geopolitical tensions and sticky inflation.
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China has faced louder pushback from key partners, including in Europe, over claims it keeps the yuan artificially weak to juice exports. Beijing rejects that, arguing exchange-rate tweaks will not solve structural imbalances and saying its export edge reflects rising industrial competitiveness. Official data indicate the trade surplus totaled $805.5 billion over the year's first eight months.
Signals from policymakers point to more tolerance for gains in the currency, in part to support stable trade ties. Following negotiations that concluded Friday, China sidestepped a more serious dispute with the European Union through an accord to limit hybrid-vehicle exports. So far this year, the yuan has gained over 8% versus the euro. Beijing's comfort with a firmer currency also aligns with the evolution of its export engine toward advanced manufacturing and cutting-edge tech.
Trivedi says a rising yuan dovetails with Beijing's long-stated ambition to expand the currency's global role. President Xi Jinping has pledged to build a powerful currency widely used in trade, investment and foreign-exchange markets, with the standing of a global reserve unit. As Bloomberg's Markets Live strategist Andre de Silva put it, "China's growing role as a provider of global funding marks a new phase of yuan internationalization, extending the currency's reach beyond trade settlement and payments into global borrowing, investment and hedging markets."
"Modest, gradual but sustained appreciation I think serves that purpose of internationalization as well," Trivedi said. "It makes the return picture in Chinese assets a bit more attractive."
If the yuan keeps grinding higher, the effects show up in everything from travel costs to the earnings of companies tied to China demand. It also colors the appeal of assets priced in yuan. The bigger takeaway here: Goldman expects any move to be steady rather than sudden, and that patience could matter more than precision on timing.
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