Doom News

As was expected in light of recent FX moderating overtures by Beijing, China will not find out if it is or is not a currency manipulator on April 15. The NYT reports that the decision from the Treasury will be deferred until after China President Hu Jintao visit Washington. "China experts said it was unlikely that China would have agreed to the
visit unless there was at least an informal assurance by the Treasury Department
that it would not be named a currency manipulator either on or around
April 15 — the deadline for the Obama administration to submit one of
its twice-a-year reports on foreign exchange to Congress." This does not mean that China will refloat the CNY, but that we are merely back to square one, after some loud TV appearances by politicians, and some even louder columns written recently by so-called pundits.

More from the NYT:

Economists say the visit, and other Chinese moves, suggest China is finally willing to let the renminbi increase in value. Analysts at HSBC, the Hong Kong-based global bank, declared that “the latest development should make it more likely for Beijing to start moving away from the renminbi’s current de facto peg within the next few months, if not weeks.”

Before the disclosure of Mr. Hu’s trip, Goldman Sachs said that China seemed increasingly likely to allow the renminbi to begin a modest appreciation in the next three months. Helen Qiao, the China economist for Goldman Sachs, and others who have spoken with officials in Beijing said that the currency issue appeared to be under active discussion there.

But what should be the value of the renminbi? Most Western economists agree that the currency is undervalued, meaning that it would be stronger if it were allowed to float freely in relation to other currencies. But that is about all the economists agree on. Some argue that the currency is undervalued by an astonishing 50 percent or more. Others contend it is about where it should be, economically speaking, saying the currency is undervalued by about 10 percent. Still others say the renminbi may actually be overvalued, because Beijing does not allow its people to trade it freely for other currencies.

The one problem with the Free Float idea, as was discussed by another Chinese administration official, is that floating the CNY would mean a more aggressive selling of US denominated assets, which would mean not just non-government backed corporates. In this time when every uptick of the market is based purely on excess liquidity, any incremental selling pressures, be they from China or the Fed, will be very carefully analyzed by the markets.