Several Asian currencies have surged since Friday, as investors contemplate currency revaluation in relation to US tariff threats. The reversal is catching traders off-guard, triggering exaggerated moves.
Speculation of China intentionally devaluing the yuan, which weighed on regional currencies earlier this year, has been superseded by the possibility of emerging market currencies being guided toward appreciation to appease US trade demands.
Taiwan’s dollar has risen as much as 8.5 percent against the USD since Thursday, amid reported progress in US trade talks, which may have involved currency discussions. The TWD is known to be a heavily-managed currency, ostensibly due to its effects on the export-centric economy, and is on the US Treasury’s “monitoring list”.
Another currency on the watchlist, the SGD, is also gaining, though much more gradually, up 1.4 percent since Thursday. The Monetary Authority of Singapore manages monetary policy via a trade-weighted currency index, and in April reduced its appreciation trajectory, anticipating slower growth and inflation. The MAS will intervene if the SGD rallies to the strong end of its undisclosed trading band.
China’s yuan is advancing against the greenback too, despite the central bank’s tight leash on the daily USD/CNY midpoint. If the PBOC were to relax this grip after China’s Labor Day holidays, the pair could slide much faster amid increased hopes of trade talks with Washington.
But Beijing is unlikely to let the yuan appreciate much due to adverse effects on tariff-hit Chinese exports. USD/CNH has slid 1.2 percent since Thursday, trading thinly on Monday with mainland and Hong Kong markets closed. The ongoing shift is based on a view Asian countries might be willing to stoke domestic currency appreciation, denting export competitiveness while making US imports more appealing, in exchange for an alleviation of harsh US trade duties. Warren Buffett’s weekend warning might also be weighing on the USD.
