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Will China be Labelled as a "Currency Manipulator"?

Will China be Labelled as a "Currency Manipulator"?

Justin McQueen,
What's on this page

Yuan Analysis and Talking Points

  • US Treasury Concerned Over Yuan Depreciation
  • Offshore Yuan Forwards Suggest Breach of 7.00 Milestone

Check out the brand new Q4 FX forecast guides

US Treasury Concerned Over Yuan Depreciation

FX markets will be placing a close eye on the latest Semi-Annual US Treasury currency report due within the next week (Prev. release April 15th) with investors increasingly cautious as to whether China will be labelled as a “currency manipulator”. Recent rhetoric from the Treasury has been one of growing concern about Chinese Yuan depreciation and with good reason, given that the Yuan has fallen more than 10% from 6.27 to 6.93 against the US Dollar.

Offshore Yuan Forwards Suggest Breach of 7.00 Milestone

Amid the continued trade spat between the US and China, more losses are expected in the China Yuan with focus on the psychological 7.00 level. Offshore one-year non-deliverable forwards contracts (NDFs), a proxy for forward looking market expectations of the Yuan’s value, trades at 7.0490 and thus confirming a potential move through the 7.00 area.

For a country to be classified as a currency manipulator, they must hit 3 key thresholds:

  • Hold a significant bilateral trade surplus with the US of at least $20bln
  • Have a material current account surplus of at least 3% of GDP
  • Persistent, one-sided intervention from net purchases of foreign currency which should total 2% of an economy’s GDP over a year

China Technically Not A Currency Manipulator

As it stands, China only hits one of these criteria’s given that that the current account surplus has dropped significantly with the most recent reading at $5.3bln in Q2 from $52.6bln in Q2 17. Elsewhere, China have largely been intervening in order to stabilise the Yuan and prevent a dramatic drop in the currency with the Chinese central bank recently imposing reserve requirements on FX forward’s in order to make it more expensive to short the Yuan. As such, it is unlikely that the US treasury can technically label China as an FX manipulator under the 2015 Trade Act. As such, due to the recent rhetoric it is possible that the US could provide a clear warning to China and highlight that they are monitoring the situation. However, if the US do label China as a manipulator this could indeed be negative for the US Dollar vs the China Yuan as recent criticism of the Yuan’s declines by the Trump administration has been met with USDCNH selling.

Major Foreign Trading Partners Evaluation Criteria in April

USDCNH Price Chart: Daily Time Frame (Nov 2017 – Oct 2018)

Source: IG Charts

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.