Since the beginning of 2014, the Chinese yuan has been in a controlled decline. Falling by 15%, The People’s Bank of China uses its not-so-invisible hand to navigate (read control) its economy. The yuan’s continued depreciation has drawn the ire of President-elect Donald Trump.
Trump said on the campaign trail that he would label China a currency manipulator.
Shortly after he won the office, Trump went tweeted,
“Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into their country (the U.S. doesn’t tax them) or to build a massive military complex in the middle of the South China Sea? I don’t think so!”
What most people, maybe even Donald Trump don’t realize is…
The currency is still extremely overvalued.
Deutsche Bank strategist, Gautam Kalani, wrote in a note sent out on Friday to clients that the Chinese yuan was “the most expensive” currency in the world.
While Kalani doesn’t go into specifics, most likely, his call has to do with the fact that as the yuan gets weaker while money pours out of China. At the same time, the dollar strengthens with expectations for Federal Reserve interest-rate hikes.
“Beyond the headline data, other indicators point to increasing capital outflows and bearish sentiment on the yuan,” Bloomberg economist Tom Orlik wrote in a note following the latest release of China’s foreign-exchange reserves, which showed gross reserves decreased by $69.1 billion, the largest drop in 10 months, to $3.05 trillion in November.
It’s possible that the yuan’s depreciation will kick into a higher gear. The Federal Reserve appeared to be a bit more hawkish than the market was expecting at its last policy meeting on Wednesday. This week, the Fed said that in 2017, it expected three rate hikes. That is up from its previous forecast.
Things aren’t likely to change anytime soon.
Do you believe an American president can have or should have, an impact on Chinese currency?
Feature Image via mrctv