USD at eight-year highs against the CNY - BBH

Research Team at BBH, notes that the dollar is at eight-year highs against the Chinese yuan today and while it seems to be a talking point, it does not appear to be a major market force. 

Key Quotes

“We share the following observations.  Since the US elections, the Chinese yuan has been among the strongest currency in the world. Since November 7, it has fallen 1.4% against the dollar.  In Asia, the only currencies to have done better is the pegged Hong Kong dollar, the Taiwanese dollar (-1.0%) and the Thai baht (-1.3%).  Among the major currencies, the yuan has appreciated against all but the British pound (+0.4%) and Canadian dollar (-0.8%).”

“There are also questions about President-elect Trump promising to cite China as a currency market manipulator.  A cautionary note is that such promises are not uncommon on the campaign trail.  Obama made similar declarations, as did Bush.  Most recently China has been intervening to strengthen its currency.  If it did not intervene and stepped away from the market, it seems most likely that the yuan would weaken, and perhaps dramatically.  On the trade front, we point out that the US trade deficit with China, whether relying on Chinese figures or American data, has fallen this year.”

“Yesterday's US retail sales data were stronger than expected, and Q4 GDP estimates were likely tweaked higher.  Today's data releases include producer prices, which are likely going to show what some economists call pipeline price pressures building, and industrial production.  The markets are not particularly sensitive to these reports.  Three Fed Presidents speak today, though Bullard has already spoken.  His new approach, unveiled earlier this year, calls for only one rate hike to restore equilibrium.  In contrast, many in the market are talking about two or three next year.  Kashkari speaks in the NY morning and Harker late in the session.”