U.S. unease grows with CNY depreciation

China is increasingly allowing its currency to be determined by market forces. Although it remains to be seen how consistently the PboC will adhere to the previous day's closing price when calculating the next day's reference rate, no-one would dispute the fact that this is an important step towards a free exchange rate, says Commerzbank.

However, this doesn't mean that all those who previously called for such a move are now content. The opposite could also be the case. Background: until recently, the International Monetary Fund (IMF) and the US Finance Ministry differed as to whether the CNY is fairly valued or not. While the IMF regarded rates of around 6.10 in USD-CNY as fair, the US Finance Ministry still regarded the renminbi as too cheap. 

And it's no coincidence that voices in the USA are now warning that the Chinese are currently only concerned with devaluing their own currency. The USD is after all at risk of being in a fairly exposed position if the Fed raises interest rates, adds Commerzbank. Many Americans simply want the CNY to be allowed to move freely with a correspondingly strong appreciation. 

In terms of US data, it's worth taking a look today at the long-term inflation expectations of the Uni Michigan. After all, (market-based) inflation expectations calculated from inflation swaps have fallen again sharply recently. Commerzbank argues, the Michigan survey very closely to be able to identify a slightly lower level for 2015 and it would certainly be a cause of concern for the Fed, with a negative impact on the USD.