Currency Wars Defused by China as Yuan Rally Spreads Across Asia
Bloomberg - May 14, 2015
China is helping its Asian neighbors stay out of the global currency wars.
Policy makers in the world’s biggest exporter have resisted weakening the yuan as economic growth slows, seeing exchange-rate stability as key to winning global reserve-currency status from the International Monetary Fund this year. That in turn has reduced pressure on China’s regional export rivals to keep their products competitive with weaker exchange rates, according to BlackRock Inc., the world’s largest money manager.
“We don’t expect a large depreciation of the yuan,†Joel Kim, the head of Asia-Pacific fixed income at BlackRock, which oversees $4.8 trillion, said April 21 by e-mail. He predicts Asian currencies will outperform peers in other emerging markets. “If they would do something like that, for the rest of Asia and the rest of the world it would obviously set off another round of competitive devaluation.â€
Foreign-exchange traders have started to take notice. The Bloomberg JPMorgan Asia Dollar Index has strengthened 2.3 percent from an almost five-year low on March 13, while the average cost of options to sell nine Asian currencies against the dollar dropped last week to the lowest since Dec. 3 versus bullish contracts. ABN Amro Bank NV, the most accurate forecaster of Asian currencies for three straight quarters, raised its June targets for the yuan, Taiwan dollar and South Korean won last week.
March Turnaround
Taiwan and South Korea, along with Singapore, have the highest export exposure to China among Asian peers, according to Roy Teo, a Singapore-based strategist at ABN Amro. He raised his June forecast for the won by 1.8 percent to 1,100 per dollar, while increasing predictions for the yuan and the Taiwan dollar by 0.8 percent and 1.3 percent, respectively.
