The US dollar strengthened against Asian currencies for a second straight day in European morning trade on Wednesday amid further signs that Asian nations are unwilling to play ball with the G7 group of major industrial countries.
Most Asian currencies rallied on Monday after the G7 reiterated its call for emerging Asia to allow greater currency flexibility in order to help reduce global economic imbalances, principally the vast US current account deficit.
However Asian currencies handed back some of these gains on Tuesday as a swathe of regional nations intervened either verbally or physically to stem currency strength, and the trend continued on Wednesday.
The Chinese renminbi, the prime target of the G7’s ire and heavily managed by Beijing, ended exchange trading a fraction lower at Rmb8.0175 to the dollar. Indeed, the currency has actually now weakened during April, having started the month at Rmb8.0155 to the dollar, despite the greenback’s weakness against currencies such as the euro, yen and South Korean won this month.
Verbal intervention also raised its head with Zhang Tao, deputy director general of the People’s Bank’s research department, saying that “we need to be very cautious about large fluctuations in the exchange rate”.
Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi UFJ, commented: “These developments suggest little prospect of the Chinese authorities adhering to the calls from G7 to allow greater flexibility.
“The price action is a clear indication that the Chinese authorities are not yet strictly managing the renminbi against a basket of currencies.”
So there.