China's yuan will continue to fall against the dollar as Beijing eyes rate cuts to revive the economy, Goldman Sachs says

• Goldman Sachs expects China's yuan to continue falling against the US dollar.
• Analysts also slashed their forecasts on yuan for the next 12 months.

Goldman Sachs expects the yuan to continue falling against the US dollar, as China's underwhelming economic growth has undermined the currency.

Analysts at the bank slashed their three-month forecast on the yuan to 7.1 per dollar from a prior view for a rally to 6.8. On Monday, the yuan exchange rate was at about 7.035.

That's after the the yuan slid past its psychologically important level of 7 per dollar last week amid fresh signs of weakening in the Chinese economy.

"Sentiment towards Chinese activity and the currency was already fairly negative through April, and yet that has weakened further in May following releases of disappointing data," Goldman said in a note from Friday.

The yuan eventually is seen rebounding, but at a slower pace. Analysts also cut their six- and 12-month forecasts for the yuan, now seeing it at 7.0 and 6.8 per dollar, respectively, versus a prior view of 6.7 and 6.5.

The 7-dollar threshold is one that the People's Bank of China has traditionally sought to avoid breaking and vowed Friday to curb currency speculation, which boosted the yuan 0.5%.

But Goldman sees the central bank also trying to stimulate the economy to revive growth, which has disappointed investors who expected a boom after Beijing ended its Covid-lockdown policies last year.

Nearing the end of the second quarter, it predicts that the PBOC will cut reserve requirement ratios by 25 basis points, and subdue its interest rates.

"Further out, a stable China activity picture along with lower core rate volatility should allow the CNY to recover, but the scope for CNY strength is likely to remain limited without further support from better data or policy," the note added.

Meanwhile, Goldman estimated some near-term growth for the dollar against global currencies broadly, but with a "bumpy deceleration" from its current gains this year.

Positive factors for the greenback include the potential for continued interest hikes, optimism from debt ceiling negotiations and weaker performance in foreign markets, the note said.