US Treasury report: No labelling, just criticism – Nomura

Analysts at Nomura point out that in its October 2018 semi-annual report on currencies, the US Treasury department did not label any of its major trade partners FX manipulators and did not change its FX monitoring list and did not announce any changes to the existing three FX manipulator evaluation criteria.

Key Quotes

“A few conclusions from the report include:

1. The Treasury is concerned that the dollar is strengthening at a time when it is moderately overvalued on a real effective basis (6% above its 20-year average), which is exacerbating trade and current account imbalances;

2. The likelihood of a negative RMB reaction is limited, in our view, as some market concerns that China would be labelled a currency manipulator were already somewhat priced in. The US is also focussing on the various methods of intervention used by the PBoC, including the USD/CNY fixings;

3. There could be one less reason for THB appreciation, as there was no mention of Thailand and no change in the list of major trading partners that could lead to the inclusion of Thailand;

4. The US Treasury states that India is likely to be removed from the Monitoring list in the next report, which could raise USD buying intervention ahead, assuming global conditions are conducive;

5. The report also states that KRW is 2-7% undervalued and the external position was still viewed as excessively strong;

6. Japan, Germany and Switzerland were advised to narrow their current account surpluses through either structural reforms and/or increased fiscal stimulus.”