Goldman Cuts Yuan Forecasts on Renewed U.S.-China Tensions

(Bloomberg) -- Goldman Sachs Group Inc. sees the yuan falling to its lowest since 2008 over the next three months amid uncertainty over U.S. policy toward China that has put pressure on the currency.

Disputes between the two countries now cover a range of issues that are unlikely to be resolved soon, strategists including Zach Pandl wrote in a May 31 note. Furthermore, over the last month the Chinese central bank has demonstrated some tolerance for gradual currency depreciation, they added.

“As result, we expect ongoing capital outflow pressures to weigh on the exchange rate and are revising our dollar-yuan forecasts higher,” they wrote.

Goldman sees the yuan falling to 7.25 per dollar on a three month horizon before recovering toward 7.15 per dollar over six months and 7 per dollar in one-year. That's up from targets of 7.15 per dollar, 7.05 and 6.90 previously.

The yuan was little changed around 7.14 per dollar in offshore trading Monday. It has fallen about 1% against the greenback over the last month.

Still, retaliatory measures from the White House from President Donald Trump's Friday press conference on Hong Kong were mild, and should not be considered a meaningful escalation, the strategists wrote.

“We do not expect recent bilateral tensions to escalate to 2019 levels, with spillovers to markets well beyond” non-Japan Asia, they said.

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