CNY: Flat for the week - BBH

Analysts at BBH note that the Chinese yuan is flat this week and after aggressive rhetoric about naming China as a currency manipulator and the feint of recognizing Taiwan, the Trump Administration has changed tactics.  

Key Quotes

“It has endorsed the one-China policy, and Treasury Secretary Mnuchin indicated that no judgment would be made until the semiannual FX report is made in April.  Under the current criteria, by intervening to strengthen rather than weaken the yuan, China is not a currency manipulator.  There is talk of an effort to take a different approach; one that focuses on valuation rather than manipulation.”  

“Even on this measure, it is hard to say that the yuan is out of line.  Investors seem to recognize this, and when coupled with elevated capital controls, the downside pressure on the yuan appears to have eased.  Here the tell may not be the spot rate so much as the 12-month forward rate, where the points have steadily fallen over the last four weeks, the longest decline in eight months.  Also, the 12-month implied volatility has eased to nearly 6%, the lowest since the end of 2015.”