Goldman Sachs has identified the Chinese yuan as one of the most mispriced major currencies globally. Their proprietary GSDEER model indicates that the yuan is undervalued by around 25% based on trade-weighted metrics. This conclusion holds significant implications for investors, especially as they consider the potential impacts on currency exchange rates and global trade dynamics.
Goldman's updated forecast suggests that the USD/CNY exchange rate could drop to approximately 6.85 within the next year. This update marks a notable shift from earlier projections of 7 made in May 2025, emphasizing increased confidence in the performance of the yuan.
The fair value determined by the GSDEER model closely aligns near 5 USD/CNY, indicating a substantial gap between the current trading value and the model's valuation. This gap embodies the 25% undervaluation mentioned previously.
So, what drives this upgraded forecast? The answer is simple. Chinese export levels have exceeded expectations, and external demand appears strong. When a country increases its exports, it typically leads to currency appreciation as foreign buyers convert their currencies into yuan to secure goods.
Beyond the forex market, a stronger yuan brings essential benefits. It would reduce import costs for China, a country grappling with deflationary pressures for an extended period. However, ongoing trade tensions between the US and China complicate this outlook. Tariff threats loom, which could neutralize some of the yuan's gains by raising the prices of Chinese products abroad. Goldman factors these elements into their forecast, resulting in a projection of 6.85 instead of the nearer theoretical value of 5.
How could a strengthening yuan influence cryptocurrency markets? Even with restrictions on cryptocurrency trading in China, stablecoins like USDT have been popular tools for circumventing capital controls. Historically, when the yuan weakens or experiences volatility, investors turn to stablecoins to secure their assets from currency fluctuations. In contrast, an appreciating yuan lessens the urgency to convert into dollar-denominated alternatives, reducing potential demand for these stablecoins.
Interestingly, the crypto community remains largely silent regarding Goldman’s stance on the yuan, indicating a perception that this is a gradual macroeconomic trend rather than an immediate trigger for price changes in the crypto market. The backdrop of the Chinese yuan's last significant devaluation in 2015 led to increased trading volume for Bitcoin among Chinese investors, raising questions regarding how a prolonged appreciation of the yuan might affect current crypto dynamics.