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The U.S. Senate has postponed its final vote on the China currency bill to Tuesday. And the bill, officially called the Currency Exchange Rate Oversight Reform Act, isn’t expected to pass. Even if the Senate and the House were to pass the bill, President Obama has indicated that he would veto it because of the impact it could have on international trade policy.
Anti-China rhetoric will likely heat up as the 2012 election approaches. But Morgan Stanley analyst Christine Tan explains why she is bullish on the yuan:
“The PBoC has historically allowed CNY appreciation against the USD only in periods of USD weakness, thus keeping the trade-weighted CNY reasonably stable. In the past week, USD/CNY has continued to fix slightly lower despite a broad-based USD rebound, and this is an encouraging signal that the PBoC is now allowing CNY to appreciate versus a basket of foreign currencies rather than only the USD.”
While there is a risk however that China could briefly cut short yuan appreciation if the U.S. dollar continues to strengthen, the likelihood of it reverting to a dollar peg is unlikely because of the political backlash it would face.