Treasury said in its April report that it is considering expanding the number of countries it examines from 13, with analysts speculating that the number could go as high as 20. Such a move would be a sign of the Trump administration ramping up its use of the currency channel to negotiate better trade deals for the U.S.
Mnuchin has said since July that Treasury is concerned about the yuan’s recent drop. The currency has slid more than 9 percent against the dollar in the last six months, raising speculation that China has been deliberately weakening its currency as tensions with the U.S. escalate.
The Trump administration has pivoted to a more aggressive stance toward China since the president said last month the country is interfering in U.S. elections. Vice President Mike Pence delivered a speech last week in Washington signaling a firmer U.S. push-back against Beijing as trade anxiety weighs on the looming midterm congressional elections.
The US administration imposed 10% tariffs on Chinese imports and the Renminbi dropped by about the same amount. If we are to conclude this is the market being particularly efficient then so be it, but Ockham’s Razor suggests the Chinese administration is managing the currency lower. That might be justified based on the slowing growth trajectory of the economy but the bigger issue is the Renminbi is weakening and that is putting downward pressure on just about all regional currencies.
Thanks to a subscriber for Russell Napier’s latest missive which may be of interest. Here is a section: