Steve let me start with you because you put out a piece on this.
Is it going to work and what is it meant to do.
No it's going to work only temporarily. So if you look at what happened in April
they did to see the currency stabilized a little bit.
But then after that just because a dollar just gets stronger.
China's macro data is weakening. And then we saw we could do.
And after that this time we expect the same of course.
As long as China is partial lockdown continual data continues to look weak.
The U.S. is just going to drop further use at
dollar especially closer to the seven handle that we see.
Okay. Now we talk about the severed hand.
I'm not sure do we talk about that because it's a nice round number.
Like what did the people that you talk to are saying.
Is that an important number. Is it going to go weaker from here.
It's definitely just a psychological milestone.
In fact the last time it actually touched 7 was in 2019 which is the post
the U.S. China trade war.
And when the things were ratcheting up between them and then it happened again
in 2020 at the height of the pandemic what's quite different and I think this
is what Stephen was saying about the fundamentals this time is that the spot
rate is moving on the weak macro fundamentals.
And what the BBC is trying to do when it's leaning against the declines with
the daily fixings and with cutting affects triple R it's mostly trying to
eliminate herd behavior is trying to kind of temper and dampen the
speculative. What my bets.
Well let's talk about that because when we talk about fundamentals then I mean
we know it's a weakening economy. I look at exports though and that's do I
think this week. I think it's 19 billion.
If I'm not mistaken was the latest read or a trade surplus.
That doesn't seem like if I put that together with a currency a currency that
many people say is undervalued or overvalued rather.
Yeah it's just a trade surplus. It's a record high reasonably.
And two very strong explosive. Very strong.
I mean it hasn't really changed these last year.
The thing is that like the rest of the economy is weakening.
So that's the problem now. If we don't have these very strong
export trade the yuan will be beyond 7 already.
So we are already talking about the support from exports.
That's keeping them below 7. Now the problem is fifth called it with
all the restrictions. We're not going to say whether it's
right or wrong but it's hurting the economy like even for us for places like
we talk about economy inside of Thailand's economy.
A lot of factories in China. So that's import impact in Thailand as
well. And also a lot of the other Asian
economies as a whole. So China's problem will actually impact
Asia and the world economy. And on top of that we're talking about
slowing aggregate demand globally us Europe.
You can name it. And that's going to fit into weaker
exports going forward. So even this really strong Tony for
Chinese currency it's going to weaken as well.
So there are just a lot of headwinds for the Chinese currency right now.
Right. And does that weaken the broader Asian
ethics complex. What's that conversation between
causality correlation and RB overthinking this.
You're kind of overthinking it because it's basically a dollar story right now.
Right. But I think what's even she was saying
was actually really kind of the key point.
There's two things that you should note. The Asian currencies like Korean War and
Taiwan dollar Thai baht they're definitely going to be linked to what
happens with the Chinese currency. Right.
But at the same time if you look at the Chinese currency from like a trade
weighted valuation it actually hasn't even moved that much this week even
though yesterday I think we saw the after yuan hit like a two year low.
Right. Yeah.
So the policymakers look at the yuan from a holistic point of view.
They're not just looking at it from the dollar yuan exchange rate.
They're looking at from trade weighted valuation.
And from that angle like the yuan is actually quite stable.
But speaking about emerging markets I do think there is a bit of a debate that's
emerging right now among whether or not emerging markets have fully decoupled
from China. I think about a year ago that
correlation was very very high with China.
But now I think some people are saying you know since the Asian financial
crisis Asian emerging market economies they've really bolster their balances
their reserves. They've done a lot to kind of being
better prepared for this cycle and this cycle of Fed tightening.
So in fact I think some emerging markets are a little bit more cushioned this
time from the yuan weakness than others. Yeah I mean the likes at the Thai baht
for example. And that's obviously a tourism story.
You mentioned the basket. Stephen let me just end on news that the
basket with one to one. Where do you see that going.
Actually we've been keeping track of the value of the basket.
And right now our number is 1 or 250. So right now we're just slightly below
fair value. And that could also be a one reason I
don't like the basket. It's pretty much stable this year but
it's still weakening quite fast over the last few weeks.
So that's probably also one of the trigger.
That's why people start throwing out measures to stabilize the yuan Joe.