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Asia tries to slow decline of dollar
Asian central banks intervened heavily in the currency markets yesterday to stem the appreciation of their currencies against the US dollar amid fears that their exports could be losing ground against China.
The mainly south-east Asian countries have been spurred to defend the competitiveness of their currencies by China's decision to, in effect, re-peg the renminbi to the dollar since July last year.
Simon Derrick, at Bank of New York Mellon, in London, said: “Other Asian central banks outside China are naturally looking to aggressively defend their competitive edge against undesirable currency strength as the dollar weakens.”
After allowing the renminbi to appreciate by about 20 per against the US dollar from mid-2005, Beijing re-pegged its currency to the greenback when export growth contracted.
The US dollar hit one-year lows against regional currencies, including the South Korean won, the Indian rupee and the Indonesian rupiah.
The dollar index, which tracks its value against six major currencies, hit a 14-month low in afternoon trading in New York.
The central banks identified by traders as significant buyers of US dollars included Thailand, Malaysia and Taiwan. Hong Kong and Singapore, which both have managed currency regimes, were also buyers.
The US dollar weakness pushed commodity prices higher. Gold prices hit an all-time high for the third day in a row, trading at $1,061.2 a troy ounce. Key base metals such as aluminium and copper jumped 4.0 per cent while crude oil surged almost $3 a barrel to more than $70 a barrel.
The moves to limit Asian currency appreciation will provide ammunition to those who warn that the new Group of 20 framework for strong and balanced growth is toothless.
Less than a week after the world's finance ministers and central bankers agreed to foster more balanced world economic growth in Istanbul, Asian officials have intervened to prevent exchange rates playing their part in the process.
However, traders said that the intervention appeared to be aimed at controlling the pace at which the US dollar declines rather than solely being an attempt to stop Asian currencies appreciating.
