(Bloomberg) -- Goldman Sachs Group Inc. expects the yuan to weaken past 7 per dollar in the next three months -- a level the currency hasn't breached in more than a decade.
The bank revised its forecasts for the yuan against the dollar because it sees the currency's decline as a natural offset to higher U.S. tariffs, even if policymakers are reluctant to see it breach the “psychologically important level of 7.00,” strategists including New York-based Zach Pandl wrote in a June 8 note.
- Goldman sees the yuan at 7.05, 6.95 and 6.80 in three, six and 12 months, respectively, from 6.95, 6.65 and 6.65
- NatWest Markets' Mansoor Mohi-uddin, a Singapore-based senior macro strategist, also said that the currency could breach 7 if a meeting between President Donald Trump and President Xi Jinping this month fails to bring a trade deal
People's Bank of China Governor Yi Gang last week hinted that there is no line in the sand for the currency, which has fallen 2.6% since the end of April to 6.9118 per dollar on Thursday after a trade war between Beijing and Washington flared up again.
Since a weaker exchange rate makes Chinese goods cheaper, there's a risk the trade war could spiral into a currency war. However, effective capital controls will probably limit the yuan's depreciation, Goldman analysts said.
To contact the reporter on this story: Netty Ismail in Dubai at nismail3@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Neil Denslow
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