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Are China and America working together on the dollar?

There is an interesting rumour around the FX markets, apparently based on a Medley report, that China and the US are working together to move the dollar lower. The Chinese Yuan goes with it and so by default the Euro and Yen rise and the US and China export part of their deflationary impulse to Europe and Japan. Geithner's recent trip to Beijing and Obama's swerving of the Dalai Lama are cited as evidence of this unlikely Sino-US detente.

So far so pin-the-tail-on-the-donkey-fx-market rumour. But the news this morning  Asia time seems to lend credence to the story. The central bank of Thailand has intervened after the baht appreciated "too fast". The South Korean government will restrict overseas borrowing by state-run companies because excessive dollar lending by local banks is driving up the value of the won, according to an anonymous finance ministry official. And just now Bernanke has boosted the dollar by talking about eventual tightening. It all points to the collusion between China and the US being uncovered and pressure being brought to bear.

There is a tradeable move here. The dollar is undoubtedly in a long term secular decline as reserves are rebalanced away from it. But the anti-dollar consensus is too strong at the moment. Go long the dollar on a short term view, against Yen, Euro or, the lowest risk option, pounds. Targets 92, 1.4250, 1.50.

Disclosure: All my spare cash is in CNY