Looking For China To Help The Dollar? By Nicholas Hastings
Where is China when the dollar needs it?
In the past, Beijing has been quick to object to any sharp fall in the currency - complaining that its decline is threatening the value of China's assets in the U.S.
The U.S. itself has often been responsive to these complaints.
At the start of the summer, when the dollar was once again on the slide, Federal Reserve Chairman Ben Bernanke was quick to respond to Chinese criticism with the comment that he thought the dollar will remain "strong."
But, as the summer months draw to a close and international investors return to the markets in force, the dollar is finding itself under pressure again - with its trade weighted index falling to new lows for the year.
So far, though, China has failed to object to the latest losses.
With the U.S. still pursuing an expansionary fiscal policy and with the Fed showing little sign of reversing quantitative easing that will leave interest rates low for the foreseeable future, support for the dollar could continue to wane.
Neil Mellor, senior currency strategist at Bank of New York Mellon and a keen China watcher, reckons that it is only a matter of time before Beijing calls foul.
He expects the U.S. to step forward once again - voicing its support for a stronger currency. But, any verbal intervention from Washington may well have even less impact this time around given the easy fiscal and monetary policy isn't about to be changed.
"As such, should a verbal campaign fail and frustration across the Pacific grow, Mr Geithner may feel that he is left with Hobson's choice: threatening physical intervention to support the dollar," Mellor said.
However, not everyone is convinced that China will complain this time around.
At Commerzbank, the head of currency strategy Ulrich Leuchtmann argued that a weaker dollar suits the Chinese at the moment.
Given the country's surplus capacities, Beijing would be only too happy to boost exports. This could well be achieved if a weak dollar helps to lower the value of the yuan - which is pegged against the dollar - against the value of most other major currencies.
Certainly, data earlier Friday showed Chinese exports falling by a rapid 23.4% over the last year, casting doubt on the country's export markets.
This could well explain why China has been silent so far and why Washington, which is quite happy with a weak dollar boosting U.S. exports, has shown little interest in starting to talk the dollar higher.
Early Friday, the dollar remained under general selling pressure, even though other Chinese data including industrial production, retail sales and the latest lending figures all came in much higher than expected.
By 0645 GMT, the dollar was down at Y91.19 from Y91.70 late Thursday in New York, according to EBS.
The euro was also up at $1.4605 from $1.4584. However, the single currency did fall to Y133.18 from Y133.73, showing that the appetite for high-yielders is on the wane.
In the past, Beijing has been quick to object to any sharp fall in the currency - complaining that its decline is threatening the value of China's assets in the U.S.
The U.S. itself has often been responsive to these complaints.
At the start of the summer, when the dollar was once again on the slide, Federal Reserve Chairman Ben Bernanke was quick to respond to Chinese criticism with the comment that he thought the dollar will remain "strong."
But, as the summer months draw to a close and international investors return to the markets in force, the dollar is finding itself under pressure again - with its trade weighted index falling to new lows for the year.
So far, though, China has failed to object to the latest losses.
With the U.S. still pursuing an expansionary fiscal policy and with the Fed showing little sign of reversing quantitative easing that will leave interest rates low for the foreseeable future, support for the dollar could continue to wane.
Neil Mellor, senior currency strategist at Bank of New York Mellon and a keen China watcher, reckons that it is only a matter of time before Beijing calls foul.
He expects the U.S. to step forward once again - voicing its support for a stronger currency. But, any verbal intervention from Washington may well have even less impact this time around given the easy fiscal and monetary policy isn't about to be changed.
"As such, should a verbal campaign fail and frustration across the Pacific grow, Mr Geithner may feel that he is left with Hobson's choice: threatening physical intervention to support the dollar," Mellor said.
However, not everyone is convinced that China will complain this time around.
At Commerzbank, the head of currency strategy Ulrich Leuchtmann argued that a weaker dollar suits the Chinese at the moment.
Given the country's surplus capacities, Beijing would be only too happy to boost exports. This could well be achieved if a weak dollar helps to lower the value of the yuan - which is pegged against the dollar - against the value of most other major currencies.
Certainly, data earlier Friday showed Chinese exports falling by a rapid 23.4% over the last year, casting doubt on the country's export markets.
This could well explain why China has been silent so far and why Washington, which is quite happy with a weak dollar boosting U.S. exports, has shown little interest in starting to talk the dollar higher.
Early Friday, the dollar remained under general selling pressure, even though other Chinese data including industrial production, retail sales and the latest lending figures all came in much higher than expected.
By 0645 GMT, the dollar was down at Y91.19 from Y91.70 late Thursday in New York, according to EBS.
The euro was also up at $1.4605 from $1.4584. However, the single currency did fall to Y133.18 from Y133.73, showing that the appetite for high-yielders is on the wane.
- 11 September |
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