Flash Comment - China: US Treasury delays exchange rate policy report

 By delaying the exchange rate policy report the US administration has avoided the reportinterfering with the current political dialogue with China while maintaining some pressureon China, thus avoiding domestic political criticism.

 Both the delay in the exchange rate policy report and president Hu’s announcement that hewill participate in the Nuclear Security Summit in Washington is a sign that the recentpolitical tension is easing. An extensive political dialogue is now going on and both partiesappear to be trying to find common ground.

 China will now have a window of opportunity to move on the exchange rate. To avoid itbecoming too politicised we believe China will resume appreciation sooner rather thanlater.