Goldman Sachs: Raises RMB Price Target to 6.50, Yen Intervention Unlikely to Reverse Depreciation Trend

Overview

The core view presented in this Goldman Sachs global foreign exchange trading report shows clear divergence between bulls and bears: strongly看好 the RMB's medium-to-long-term appreciation potential, while being pessimistic about the yen and some emerging market currencies (such as the Colombian peso and Romanian leu). The report points out that although geopolitical conflicts bring short-term disturbances, China's strong export competitiveness and current account surplus support the RMB's strength. Goldman Sachs therefore significantly raised its future price target for the RMB against the dollar. Conversely, the Bank of Japan's currency intervention is viewed as an expedient measure 'to buy time' and cannot change the yen's depreciation trend constrained by the US-Japan interest rate spread and fundamentals. Furthermore, the report analyzes in depth the differentiation logic of Nordic currencies and optimization strategies for FX carry trades, suggesting seeking currency opportunities with carry buffers and commodity exposure amidst volatility.

Core views

RMB: Fundamental Driven Appreciation. Goldman Sachs believes the logic behind the RMB's strengthening has transcended short-term trade negotiation catalysts and shifted towards deeper fundamental factors. China's current account surplus accounts for nearly a historical high proportion of global GDP, reflecting extremely strong export competitiveness, while the current exchange rate remains significantly undervalued (calculated using the weighted average valuation model, the RMB is more than 20% undervalued against the US dollar). Although the Iran War and energy shocks temporarily pushed up energy prices and downgraded growth expectations for trading partners, in the medium-to-long term, accelerating global investment in energy security and renewable energy will benefit China's dominant position in clean energy supply chains. Therefore, Goldman Sachs adjusted its 3-month, 6-month, and 12-month forecasts for USD/CNY to 6.80, 6.70, and 6.50 (previously 6.85, 6.80, and 6.70), believing the RMB will present a progressive and sustained appreciation trend. Yen: Intervention Cannot Resist Fundamental Pressure. The Japanese Ministry of Finance conducted a new round of forex market intervention on May 6th, the scale of which may be comparable to late April. Goldman Sachs pointed out that although the Japanese government still has cash and securities reserves of about 1.1 trillion US dollars available for intervention, depleting these reserves heavily lacks persuasiveness under the current macro background. If intervention shifts to selling US Treasuries, it will push up US Treasury yields, potentially backfiring; if forcibly preventing the yen from weakening along with fundamentals, adjustment pressure will transfer to Japanese Government Bonds (JGBs), similar to reverse operations of Yield Curve Control (YCC). Unless there are recession concerns, a significant hawkish pivot by the Bank of Japan, or more effective coordinated intervention, yen depreciation pressure will continue. Nordic Currencies: Policy Differentiation and Energy Shocks. The Norwegian Central Bank unexpectedly raised rates and hinted at further tightening later this year, driving the Norwegian Krone (NOK) higher; while the Swedish Central Bank stood still. This monetary policy differentiation combined with energy shocks creates upward pressure on NOK/SEK. Goldman Sachs believes that the Swedish Krona (SEK), as a G10 currency with high beta, benefits when geopolitical tensions ease, but when energy shocks escalate, the upside space of USD/SEK can serve as a good hedging tool. Emerging Market Currencies: Prefer Carry Trades, Avoid Political Risks. In terms of FX carry trades, Goldman Sachs recommends constructing a long basket including Brazilian Real (BRL), Hungarian Forint (HUF), Mexican Peso (MXN), and South African Rand (ZAR). Among them, BRL has the highest real interest rate among emerging markets and benefits from improved terms of trade; HUF driven by economic policy shift after elections; MXN correlates with US cycle performance; ZAR has room for appreciation when geopolitical situations ease. Conversely, maintaining caution towards Colombian Peso (COP) and Romanian Leu (RON). COP faces policy uncertainty from presidential elections; the central bank paused rate hikes to avoid influencing election decisions, causing exchange rate pressure; RON weakened significantly due to political turmoil caused by government dissolution and difficulties in fiscal integration, with forward markets not fully pricing in risks, lacking rebound attractiveness.

Analysis framework

This report adopted a typical analytical framework combining fundamentals and valuation. First, assess the long-term equilibrium value of currencies through macro indicators such as current account balance as a percentage of global GDP and real effective exchange rate (e.g., RMB valuation analysis). Second, analyze short-term market sentiment and policy constraints by combining central bank policy moves (e.g., Norwegian Central Bank rate hike, Bank of Japan intervention) and geopolitical events (e.g., Iran War, country-specific elections). Finally, utilize GSBEER (Goldman Sachs Behavioral Equilibrium Exchange Rate Model) and GSFEER (Goldman Sachs Fundamental Factors Equilibrium Exchange Rate Model) to quantify currency mismatches, combined with correlation of carry returns and risk assets (such as oil prices and S&P 500) to build and optimize foreign exchange investment portfolios. This methodology helps investors distinguish which currency movements are temporary noise and which are structural trends.

Methodology notes

• Valuation methods

  GSBEER/GSFEER Equilibrium Exchange Rate Models

  Goldman Sachs uses its proprietary Behavioral Equilibrium Exchange Rate (BEER) and Fundamental Factors Equilibrium Exchange Rate (FEER) models to estimate reasonable currency values. BEER focuses on statistical relationships, while FEER focuses on macroeconomic fundamentals (such as terms of trade, productivity, etc.). When the actual exchange rate deviates from the model estimate, it indicates overvaluation or undervaluation, providing an anchor for medium-to-long-term exchange rate trends.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Terms of Trade and Current Account Analysis

  The report determines currency supply and demand fundamentals by analyzing national export competitiveness, the proportion of current account surplus to global GDP, and the impact of energy price changes on the trade balance. For example, China's dominant position in clean energy supply chains is viewed as a key supply-side factor supporting RMB demand in the medium-to-long term.

• Quantitative/Factor/Portfolio TheoryBeta/alpha analysis

  FX Carry and Risk Asset Beta Analysis

  The report analyzes the Beta coefficients of different currency carry baskets (Carry Basket) against oil prices and stock markets (S&P 500). By selecting funding currencies with low or negative Beta (such as Euro, Swedish Krona), one can reduce the portfolio's sensitivity to energy price fluctuations and risk sentiment changes while acquiring carry income, achieving better risk-adjusted returns.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Renminbi (CNY)

  Beneficiary: Strong export competitiveness, high current account surplus, significantly undervalued

  Strengths

  Dominant position in clean energy supply chain, real exchange rate still has appreciation space

  Weaknesses

  Short-term dragged by rising energy prices and slowing growth of trading partners

  Comparison

  More solid fundamental support compared to other emerging market currencies

  Risks

  Progress in China-US trade talks falls short of expectations, escalation of geopolitical conflicts

• Japanese Yen (JPY)

  Loser: Large US-Japan interest rate spread, central bank intervention has limited effect

  Strengths

  Traditional safe-haven currency attributes

  Weaknesses

  Slow monetary policy normalization, intervention may push up US Treasury yields

  Comparison

  Deepest depreciation pressure compared to other G10 currencies

  Risks

  Unexpected significant rate hike by Bank of Japan, sharp deterioration of global risk appetite

• Brazilian Real (BRL)

  Beneficiary: High real interest rate, improved terms of trade

  Strengths

  One of highest real interest rates in EMs, commodity exporting nation

  Weaknesses

  Sensitive to global risk sentiment

  Comparison

  Provides highest carry buffer in recommended carry basket

  Risks

  Decline in global commodity prices, domestic fiscal policy risks

• Colombian Peso (COP)

  Loser: Election uncertainty, central bank pauses rate hikes

  Strengths

  Supported by high oil prices

  Weaknesses

  Fiscal fragility, increased political noise

  Comparison

  Weaker recent performance compared to other Latin American currencies

  Risks

  Election results unfavorable to market-friendly policies, expansion of fiscal deficit

Key data

• USD/CNY 12-Month Forecast6.50Significantly raised from previous forecast of 6.70, reflecting view on RMB strengthening
• RMB Valuation StatusUndervalued >20%Against the US dollar, based on weighted average valuation model
• Available Size of Japanese Forex ReservesApprox $1.1 TrillionSum of cash and securities, used for potential forex market intervention
• USD/JPY 12-Month Forecast155Implies continued expectation of yen depreciation
• Recommended Carry Trade Long CurrenciesBRL, HUF, MXN, ZARBased on high real interest rates, improvement in terms of trade, or cycle recovery logic

Impact & implications

For investors, the report suggests re-examining forex allocation logic. Attractiveness of RMB assets improves in the medium-to-long term, not limited to short-term game of trade negotiations. For investors holding yen exposure, need to beware of further depreciation risks after intervention failure. In EM investing, high yield alone is no longer the only standard; need to conduct refined screening combining political cycles (such as elections and regime in Colombia, Romania) and terms of trade (such as impact of energy prices on Nordic currencies). Using Nordic currencies or Euro as funding end for carry trades may provide better risk hedge effects compared to traditional USD or JPY funding.

Risks

• Iran War and escalation of geopolitical conflicts cause violent fluctuations in energy prices
• Stickiness of US inflation leads Federal Reserve to maintain high rates for longer, suppressing non-USD currencies
• Significant deterioration in growth outlook of major economies (such as China, Europe)
• Political turmoil in emerging market countries (such as Colombia, Romania elections) triggers capital flight

What to watch

• Upcoming Trump-Xi Summit and its impact on China-US trade relations
• Subsequent forex market intervention actions by Japanese Ministry of Finance and policy statements by Bank of Japan
• Whether Norwegian Central Bank will raise rates again as scheduled at September meeting
• Results of Colombian Presidential Election and its impact on fiscal and monetary policy
• Global energy price trends and their impact on terms of trade