How Long Until the Yuan Blows a Gasket?

FTAlphaville: Here’s looking at Chinese FX reserves releases

We believe China will continue to post outflows for two reasons. First, interest rate differentials against the US declined by 200-250bp since January 2014. Even assuming no imminent lift-off in the Unites States any time soon, the flows will likely pull USD/CNY higher. We believe there is about USD400-500bn of pipeline demand in short-term international claims just to reverse some of the flows observed since 2010.

Second, we believe the CNY is about 15-18% overvalued. This is because the CNY has appreciated 16% and 14% against the EUR and the JPY since the summer of 2014.

And if the U.S. dollar bull market has several years to go, with much more appreciation versus the EUR and JPY to come, how much more would CNY need to depreciate?