Goldman Sachs Sees Deep Value in Chinese Yuan for 2026 FX Strategy

Key Moments

Goldman Highlights Yuan as Core FX Idea for 2026

Goldman Sachs is positioning the Chinese yuan as one of its ‘highest conviction’ FX ideas for 2026. The bank argues that the currency is far cheaper than market pricing suggests. As a result, Goldman believes the yuan could outperform the appreciation implied by FX forwards.

In a research note published Tuesday, analyst Teresa Alves outlines a valuation thesis built on several structural forces. She expects these forces to continue into next year. Moreover, she says the yuan looks deeply undervalued across both of Goldman’s main models, GSDEER and GSFEER.

GSDEER Signals Deep Undervaluation

According to Alves, on a weighted average basis the yuan is about 25% below fair value. She attributes this to “low inflation and high productivity relative to the U.S.” which, in her view, have pushed the GSDEER fair value stronger over time, “especially since the Covid outbreak.”

The GSDEER model now estimates fair value for the yuan near 5.00, which, Alves says, implies “a roughly 30% undervaluation versus the dollar.”

Alves writes, “This fair value has been trending lower over time and our fair value projections suggest that this will continue to be the case over the next 10 years. Therefore, even with the appreciation that we forecast, the Yuan would remain undervalued (by close to 19% in 2035).”

GSFEER Framework Backs the Bullish View

The GSFEER framework leads to the same conclusion. Goldman estimates the real trade-weighted yuan is about 12% undervalued. The bank mainly attributes this to China’s current account surplus, which remains far above its long-run average.

Goldman’s economists expect that surplus to increase further, driven by stronger export performance and subdued domestic demand. In their view, this backdrop sustains upward pressure on the currency. The note adds that even under different assumptions – such as a lower “norm” for the current account or a larger surplus – the resulting FX adjustment still points to a meaningfully stronger yuan.

Addressing Concerns on Exports and Currency Strength

In the report, Alves responds to the argument that a stronger yuan could undermine China’s export performance. She contends that the currency is currently so cheap that the appreciation Goldman anticipates would “still leave the currency comfortably in inexpensive territory,” while the strength of the current account in a relatively closed financial system naturally supports currency appreciation.

Alves recalls that similar forces were evident during “China Shock 1.0” following the 2005 revaluation. She also notes that as Chinese exporters gain more global market share, yuan appreciation is likely to function as part of the natural counterbalance.

Key Risks and Market Signals

Alves identifies two primary risks to this constructive yuan view: weaker-than-expected domestic demand or export performance, and the fact that the degree of currency strength is still influenced in part by policy decisions.

Even so, she points to the pattern seen this year of a consistent bias toward a stronger daily fixing and more favorable rolling total returns for long-CNY positions as supportive indicators for the strategy.