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Goldman Sachs Advises: What to Watch in 2017

PART:
1 2 3 4 5
Part 3
Goldman Sachs Advises: What to Watch in 2017 PART 3 OF 5

Goldman Sachs: Where Could the Chinese Yuan Head in 2017?

Chinese yuan

After Donald Trump’s US election win, the Chinese yuan fell 1.6% against the US dollar (UUP) (USDU) (UDN) between November 9 and November 22, 2016.

The fall in China’s (YINN) (MCHI) currency was due to the protectionism policies Trump cited during his election campaign. Trump’s key economic policy aims to boost domestic job growth in the United States (VFINX) (QQQ) by raising trade barriers for foreign exporters.

Goldman Sachs: Where Could the Chinese Yuan Head in 2017?

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The United States is an important market for China

The United States (IWM) (IWF) is an important market for Chinese products. The United States is also China’s (FXI) largest trading partner. If Trump raises the trade barriers for Chinese products, it could affect employment and international trade for Chinese producers.

Trump said during his campaign that he would place higher import duties on various Chinese products, promoting the domestic market in the United States (SPY) (IWM). His protectionist approach could restrict financial and trade flows between the United States and China.

Goldman Sachs’s view on the yuan

According to Goldman Sachs, the yuan could continue its downfall going forward. The depreciation in the yuan could lead to huge losses for foreign investors in Chinese financial markets. The yuan’s movements will also be crucial for US companies such as Apple (AAPL), as China is an important market for its products.

According to Goldman Sachs, “The fundamental dilemma of China’s currency regime is that, in an environment of a rising dollar, keeping the CFETS basket stable requires $/CNY to move higher meaningfully, which carries the risk that capital outflows re-escalate, our base case is one where the $/CNY fix continues to grind higher, driven by domestic pressures and in the context of a stronger dollar.”

In the next part of this series, we’ll analyze Goldman Sachs’s view on the 10-Year US Breakeven Inflation Rate.

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