The Chinese yuan is going to get weaker in the next 6 months, says Goldman Sachs

Key Points
  • Goldman Sachs forecasts the yuan reaching 7.1 against the dollar in the next six months, breaching the psychologically important barrier of 7.
  • President Donald Trump frequently accuses China of intentionally keeping its currency weak, though independent strategists say China has worked to prop up the yuan.
Chinese 100-yuan notes at a bank in Nantong in China's eastern Jiangsu province.
AFP | Getty Images

The Chinese yuan is expected to weaken further in the next six months, a Goldman Sachs analyst said on Wednesday.

Timothy Moe, co-head of Asia macro research, said the bank expects China's currency to "pop over" the psychological barrier of 7 per dollar, to reach 7.1 in the next six months. The currency pair is trading at around 6.94  as the yuan has declined by 6 percent against the greenback year-to-date.

"It's probably unlikely to happen before the end of the year because ... 7 seems to be the short-term line in the sand ... The U.S. is looking at that figure — and probably a bit above — as evidence that might support allegations of currency manipulation," Moe told CNBC's "Squawk Box."

China will want to avoid opening itself to such allegations, particularly ahead of President Donald Trump and Chinese counterpart Xi Jinping's meeting at the G-20 summit next month, Moe added.

Trump often accuses China of keeping its currency weak so that its exports will be cheaper and therefore more competitive. 

China has been criticized for letting its currency fall, but strategists say the country actually has worked to prop the currency up since it got close to that key level of 7. The leadership in Beijing has tried to stem capital outflows, which typically accelerate when its currency weakens.

What is currency manipulation?
What is currency manipulation?

China's central bank sets a daily exchange rate for the yuan based on recent prices and allows trading against the dollar in a band that could be as much as 2 percent above or below that level.

Last week, the Treasury Department refrained from calling China a "currency manipulator," a designation that's been threatened by multiple U.S. administrations but not actually applied since 1994.

With the dollar's recent strength, the Chinese yuan will gradually moderate or depreciate against the greenback, said Moe.

—CNBC's Patti Domm contributed to this report.