But China may yet dodge the manipulator bullet. Beijing has been engaged in strenuous efforts to support the currency and limit capital flight by imposing tighter capital controls and discouraging speculative bets through selling dollars from its massive foreign exchange reserves.
Speaking with CNBC on Thursday, Treasury Secretary Steven Mnuchin discussed the question of China’s currency: “We have a process within Treasury where we go through and look at currency manipulation across the board,” Mnuchin said. “And we’ll go through that process.”
“We’ll do that as we have in the past, and we’re not making any judgments until we continue that process.”
Under rules adopted by the Obama Treasury, China must meet three standards to move it off the watch-list and officially cast it as a currency manipulator. It must hold a trade surplus with the U.S. of above $20 billion, the current account surplus must exceed 3 percent of GDP and official currency purchases must be in excess of 2 percent of GDP. China meets the first criterion only.
“At this current juncture, labeling China as a currency manipulator is erroneous,” said Marie Owens Thomsen, Chief Economist, Indosuez Wealth Management.
Slapping a currency manipulator tag on China could be counter-productive, said Adam Reynolds, CEO for Asia-Pacific at Saxo Bank: “If they try to push China, that increases volatility and may depreciate the yuan for a long period which would be bad for global markets.”
Many respondents warned that the Trump administration may direct the Treasury to revise the official classification to make the currency manipulator tag stick.
The on-shore yuan traded against the dollar at 6.8725 on Friday morning HK/SIN, climbing from levels near 6.8622 in the previous session. Earlier that day, the People’s Bank of China set the yuan mid-point fix at 6.8655. The off-shore yuan, which is more freely traded, was at 6.8549.
Survey respondents said the Chinese yuan will continue to depreciate, with the median of 32 forecasts predicting the currency will drop to 7.2 against the U.S. dollar by the end of 2017. Within the survey, the bounds were predictions of 6.85 and 8.5 dollar/yuan.
