(Bloomberg) -- Goldman Sachs Group Inc. boosted its forecasts on China’s yuan to reflect improving sentiment as trade tension between the world’s two largest economies eases.
The currency, which is rebounding from its weakest level in a decade in October, will rally about 0.9 percent to 6.7 per dollar in a year, Goldman analysts led by Danny Suwanapruti wrote in a note Monday. The yuan has risen 1.4 percent over the past four days, fueled by hopes that China and the U.S. will reach a trade deal and the Federal Reserve may halt interest-rate hikes.
“We have increased the probability of a ‘deal’ and ‘status quo’ scenario while reducing the risk of escalation over our forecast horizon,” the analysts wrote in a note, referring to the trade war. “Factors likely to limit excessive yuan strength, even in the event of a pause in trade tensions, include a slowing in Chinese growth combined with a weakening in China’s external balance.”
Goldman is joining a growing camp of yuan bulls -- Standard Chartered Plc sees the currency ending this year at 6.65, helped by foreign inflows, and Citigroup entered trades betting the currency would rise to 6.6.
Some are cautious over the yuan’s advance. The currency faces “correction risk” as intensifying concerns over China’s economic slowdown will likely weaken sentiment again, Ken Cheung, a foreign-exchange strategist at Mizuho Bank Ltd., wrote in a note Monday.
The yuan pared a gain of 0.48 percent to trade 0.05 percent higher at 6.7630 per dollar as of 5:26 p.m. in Shanghai. Data released Monday showed China’s exports unexpectedly slumped in December. The currency was at its highest level since July in the morning, ahead of the data.
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