US Treasury FX report: Monitoring India; Thailand at risk of being labelled - Nomura

Analysts at Nomura explain that the US Treasury’s just-published semi-annual report to congress on “Foreign Exchange Policies of Major Trading Partners of the United States” did not provide any significant surprises.

Key Quotes

“India was added to the monitoring list and, while no changes were made to the criteria for labeling a country an currency manipulator, the US Treasury did state that it was considering expanding the number of economies (major trading partners) covered in the report, which means countries like Thailand could be included in the future. Interestingly, the report highlighted that an economy could be found to have met the standards of manipulating its currency identified in either 1988 Act or 2015 Act1 without being found to have met the standards identified in the other – Korea, Taiwan and China were labelled as manipulators under the 1988 Act in the 1980s and 1990s.”

“Overall, the April FX report should maintain broad appreciation pressures on Asia FX (from the US political angle), especially on India, as it was added to the monitoring list, while a potential expansion of the trade partner list may also limit USD buying actions by the Bank of Thailand (21st-ranked trading partner based on 2017 US Census Bureau data). On specific countries, the report was relatively critical of Germany on its current account surplus, its limited progress to reduce this and EUR undervaluation.”

“Although India was added to the monitoring list, the Treasury only stated that further reserve accumulation was not necessary and INR was not undervalued. In China, the report did suggest that RMB could appreciate more on a trade-weighted basis, while on Korea, it stated KRW was undervalued by 1-12% and the current account was still larger than what is fundamentally justified.”