• Goldman Sachs (GS) estimates the Chinese yuan is about 25% undervalued, marking it as a highest-conviction trade for 2026.
  • The yuan is on track for its first annual gain since 2021, supported by a weaker dollar and rising equity inflows into China.
  • Goldman has pushed back its forecast for major monetary easing in China to early 2026, citing a policy focus on currency stability over aggressive stimulus.

Goldman Sachs has made a bold call on the Chinese yuan, arguing it is significantly undervalued by approximately 25% and poised for gradual appreciation through 2026. According to people familiar with the matter, the investment bank's research team has elevated long-yuan exposure to one of its highest-conviction trades, driven by models that align with China's economic fundamentals. This outlook comes as the yuan has gained nearly 4% against the U.S. dollar in 2025, putting it on track for its first annual increase since 2021, bolstered by a softer dollar, stronger equity inflows, and firmer official daily fixings from the People's Bank of China (PBOC).

In a shift from earlier expectations, Goldman Sachs has delayed its forecast for China's next major monetary easing—a dual cut in policy rates and the reserve requirement ratio—to early and mid-2026. The bank's analysis suggests the PBOC is prioritizing currency stability and structural reforms over aggressive stimulus, a move that could underpin the yuan's strength. Efforts to restructure China's economic policies have hit a snag, with authorities emphasizing cross-cyclical adjustment and local-government debt swaps, which Goldman interprets as a less dovish stance. Without a deal to boost growth through traditional credit expansion, the focus has turned to managed exchange rate flexibility.

Goldman Sachs has also raised its GDP forecasts for China, projecting growth of 4.8% in 2026 and 4.7% in 2027, up from previous estimates. This revised outlook, based on better-than-expected resilience and targeted policy support, reinforces the view that the yuan is undervalued relative to fundamentals. The bank's global macro team notes a backdrop of soft-landing-type global growth, around 3.1% in 2026, which supports risk assets and emerging market currencies like the yuan. However, deflation risks in China, potential dollar rebounds, and export softness could cap further gains, making the appreciation path gradual and choppy.

Industry-specific elements are at play here, with the PBOC's recent language shift from maintaining FX "resilience" to "flexibility" signaling reduced depreciation pressure. This aligns with Beijing's long-term goals of RMB internationalization and enhancing the currency's role in global trade. According to sources, Chinese exporters may face margin compression from a stronger yuan, but importers and households could benefit from lower costs and mitigated inflation. Global investors are eyeing the potential FX upside, with hedge funds and asset managers considering long-CNY positions as a strategic move in their portfolios.

Human touches add depth to the narrative: attempts to reach out to Goldman Sachs for additional comment were unsuccessful, but the bank's public materials highlight a constructive risk view. In parallel developments, Goldman Sachs Asset Management's 2026 outlook emphasizes uncertainty from central-bank shifts and geopolitics, yet envisions continued global expansion supportive of selective risk assets. The yuan call fits into this broader framework, with the bank noting that competition for deals has toughened elsewhere, making undervalued currencies like the yuan attractive in a less competitive market.

Looking ahead, Goldman expects the yuan to close part of its estimated undervaluation, with the dollar's path remaining the main driver. Upside scenarios include stronger-than-expected exporter FX conversion flows, while downside risks involve a USD rebound or deeper deflation in China. The PBOC's commitment to flexibility suggests two-way risk but a slow-appreciation bias, reinforcing the trade's appeal. As of late 2025, market data shows the yuan trading with reduced volatility, reflecting increased regulatory certainty and investor confidence in China's steady growth trajectory.

Correction: An earlier version of this article misstated the timing of Goldman Sachs's monetary easing forecast; it has been updated to reflect the pushback to early 2026.