Goldman Sachs says China’s yuan is trading far below its fair value, estimating the currency is about 25% undervalued when measured against economic fundamentals such as stable prices, balanced trade flows and long-term growth potential. The bank called the yuan one of its “highest conviction” global currency trades and said market pricing for 2026 does not reflect the strength it expects.
According to Goldman’s modeling, the yuan’s optimal exchange rate is materially higher than current levels, implying forward markets are discounting too much structural weakness in China’s economy and underestimating potential policy support. The bank expects appreciation beyond what existing contracts signal for the coming two years.
Goldman Says the Yuan Is Mispriced
The bank’s analysis focuses on China’s underlying external accounts, which remain broadly stable despite headline concerns about slowing growth. As previously covered, Chinese authorities have leaned on targeted stimulus, currency management and credit support to stabilize activity. Goldman argues that these measures, alongside still-solid export competitiveness, point to a fundamentally healthier exchange-rate outlook than markets currently assume.
The yuan’s softness in recent years has been shaped largely by diverging monetary policy between China and the United States, heavy capital outflows from global funds and concerns surrounding China’s property downturn. But Goldman’s models suggest the current level overshoots the degree of justified depreciation.
The bank also sees room for Beijing to lean toward currency stability as part of broader economic management, particularly if deflationary pressures ease and domestic demand slowly recovers. That backdrop, Goldman says, strengthens the case for a medium-term rebound.
What a Yuan Rebound Would Mean for Markets
A stronger yuan could reshape capital flows across Asia and influence near-term currency dynamics for regional peers. It may also help ease imported cost pressures for Chinese manufacturers, potentially supporting margins as supply chains continue normalizing. For global investors, renewed yuan appreciation would alter relative return expectations for emerging-market currencies and could dampen dollar strength in select trade pairs.
Still, risks remain. China’s growth outlook is uncertain, property-sector stress persists, and global financial conditions may tighten again if inflation proves sticky. Goldman notes that these factors could slow the pace of appreciation, even if the long-term path looks stronger.
For now, the bank maintains the yuan is materially undervalued and expects a meaningful re-pricing as confidence gradually returns. How aggressively policymakers guide the currency in 2026 will be central to whether that outlook materializes.
