Goldman Sachs Likes China Yuan on Possible U.S. Tariff Rollback

(Bloomberg) -- Goldman Sachs Group Inc. recommends buying the Chinese yuan on a bet the U.S. will roll back some of its additional tariffs on the Asian nation.

The investment bank also likes the Indonesian rupiah due to its relatively high interest rates, and sees further gains in Thailand’s baht given the country’s persistent current-account surplus, Zach Pandl, co-head of global foreign-exchange and emerging-market strategy in New York, said in an interview on Bloomberg Television.

“The case to be long yuan is really about the prospect of a tariff rollback in the U.S.,” Pandl said. “If we do get confirmation of a rollback of some of the tariffs, we think that the yuan could have a relatively sharp but short-lived period of appreciation into the first quarter. it is one of our favorite FX trades”

The yuan has dropped 1.6% on a trade-weighted index basis this year even though the U.S. and China appears to be moving closer to signing a phase-one trade deal. The Trump administration has put import taxes in place on some $360 billion in goods from China and has threatened to impose new levies on another $160 billion on Dec. 15.

Goldman Sachs favors betting on the rupiah against the Taiwan dollar due to their interest-rate differential, Pandl said.

Indonesia’s currency is “benefiting from a decent global growth backdrop, from high interest rates relative to a lot of peers, from generally good governance out of the current administration,” he said. “Out of all currencies globally, including the euro, Taiwan is the lowest yielder. So it’s the best funder from a straight yield standpoint at the moment.”

The Goldman strategist also predicts the baht will keep appreciating as Thailand isn’t able to recycle its persistent current-account surpluses into portfolio and direct investment outflows.

Pandl said the U.S. may request more openness from China about its currency policy as part of a trade deal, somewhat similar to its requests to South Korea and in its U.S.-Mexico-Canada Agreement.

“We think the language along those lines, which basically ask for Beijing to be a little bit more forthcoming when it’s intervening in currency markets,” he said. “That’s not really what’s driving the yuan at the moment, so we don’t think it’s a major issue for the trade talks.”

--With assistance from Shery Ahn and Paul Allen.

To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas Reynolds

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