Dollar faces US$2.5tril ‘avalanche' of Asian sales
NEW YORK : The US dollar may face a US$2.5 trillion 'avalanche' of selling as Asian countries unwind their stockpile of the world's reserve currency, according to Stephen Jen.
'Asian exporters and investors may have amassed an 'extremely large' pile of dollars through the years, widening the region's trade surplus with the US,' Eurizon SLJ Capital's Jen and Joana Freire wrote in a note today.
As a US-led trade war deepens, some Asian investors might repatriate chunks of funds or ramp up levels of protection against a weakening dollar, potentially triggering an exodus from the world's reserve currency.
'We suspect these dollar hoardings by Asian exporters and institutional investors may be extremely large – possibly on the order of US$2.5 trillion or so – and pose sharp downside risks to the dollar vis-à-vis these Asian currencies,' Jen and Freire wrote.
The greenback's long-term appeal is coming under threat as Donald Trump's efforts to remake the global trade order prompt investors to reconsider their US exceptionalism trade strategies.
An outsized jump in the Taiwan dollar on Monday added to speculation that Asia's policymakers may be prepared to let their currencies appreciate versus the dollar as part of efforts to secure a trade deal with the US.
Bloomberg's dollar gauge has dropped about 8% from a February high and all Asian currencies have strengthened versus the greenback in the past one month.
Jen, known for his work on the 'dollar smile' theory, had previously said about US$1 trillion could flow back to the world's number 2 economy as Chinese companies sell their dollar-denominated assets when the Federal Reserve cuts interest rates.
'Accelerating the multi-trillion dollar flows may be 'naked long-dollar positions' prevalent among Asian countries that run large external surpluses,' he wrote, referring to positions that are not hedged against fluctuations in the dollar.
Some of these countries include China, Taiwan, Malaysia and Vietnam.
There is an 'important imbalance in the world that puts the dollar in a vulnerable position,' Jen wrote in the latest report.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
New Straits Times
39 minutes ago
- New Straits Times
Stocks drop worldwide as investors brace for crucial week
LONDON/TOKYO: Investors cashed out of highly valued global stocks on Friday and the dollar headed for its biggest weekly drop in a month ahead of a crucial week for markets that includes Donald Trump's tariff deadline and key central bank meetings. MSCI's global equity index retreated from an all-time high and was 0.2 per cent lower in early European trading, while Japan's Topix index ended the day 0.9 per cent lower after rising to a record on Thursday. Europe's STOXX 600 share index also fell 0.5 per cent in early trade. Ahead of the August 1 deadline for US trade deals with Europe and China, stock markets have been buoyed by firm US economic data and framed the risk of tariffs hitting growth as a reason to expect Federal Reserve rate cuts. "Higher (US) inflation will, in time, result in weaker demand and weaker investment," UBS Wealth Management economist Dean Turner said. Van Luu, head of solutions strategy, fixed income and foreign exchange at Russell Investments, said he was waiting for a buying opportunity in US Treasuries for this reason. "US data looks astonishingly resilient," he said, but this likely reflected a spending rush before tariffs pushed business input costs and retail sticker prices higher. Risk events The past week saw US trade agreements with Japan, Indonesia and the Philippines, while deal talks continued with South Korea. Next week brings the next Fed interest rate meeting, the closely watched monthly payrolls report, and earnings from Amazon, Apple, Meta and Microsoft. Trump has kept up pressure on Fed Chair Jerome Powell to cut rates after a rare presidential visit to the central bank on Thursday, although he said he did not intend to fire Powell, as he has frequently suggested he would. US 10-year Treasury yields were steady at 4.41 per cent, while two-year yields, which track monetary policy bets, were also flat at 3.92 per cent. Robust earnings from Google parent Alphabet took Wall Street's Nasdaq to a record high on Thursday, but futures trading signalled the tech-heavy index would flatline at the start of cash trading in New York. Contracts tracking the blue-chip S&P 500 index were also flat in early European dealings. The Bank of Japan has its own policy announcement on Thursday, and Prime Minister Ishiba's Liberal Democratic Party holds a meeting on the same day. That's after the European Central Bank held rates steady on Thursday, pausing its easing campaign as it waited to assess the impact from US tariffs. The euro was steady against the dollar on Friday at US$1.1745, although German government debt sold off, with the yield on benchmark 10-year Bunds up 5 basis points in early dealings to 2.74 per cent, the highest since March 28. Japanese government bond yields were steady on Friday at about 1.60 per cent, a level last seen in October 2008, having ratcheted higher on concerns the political scale is tilting more towards fiscal stimulus. This came after big gains for opposition parties backing consumption tax cuts in Sunday's upper house election. Pressure is building on the more fiscally hawkish Ishiba to quit after his coalition lost its majority in the vote, having done the same in lower house elections last October. Gold eased 0.3 per cent to around US$3,356 an ounce. Brent crude futures gained 0.7 per cent to US$69.65 a barrel.
New Straits Times
39 minutes ago
- New Straits Times
Malaysia, Thailand, Indonesia emerge as launchpads for China's EV giants
KUALA LUMPUR: Automotive investments surged this quarter, led by a sharpened focus on the electric vehicle (EV) supply chain and Asean's rise as a key hub for global automakers, according to BMI, a unit of Fitch Solutions. BMI said the most notable trend is the continued expansion of Chinese automakers such as Geely, GAC, and Changan, who are using the Asean region, particularly Thailand, Malaysia, and Indonesia, as key launchpads for their global ambitions. "Geely has announced a landmark investment in Malaysia to transform Tanjung Malim into a major automotive hub, while also pursuing collaborations in Indonesia aimed at developing a homegrown EV by 2026. "GAC and Changan are similarly increasing their presence, with Changan leveraging its manufacturing footprint in Malaysia to support regional growth and GAC introducing flagship models and supply chain capabilities at regional expos," it said in a recent note. According to BMI, the EV supply chain itself is seeing robust investment, underpinned by a drive for localisation and electrification. It added that Thailand is experiencing a surge in EV demand, with sales expected to jump over 40 per cent in 2025, supported by government incentives and the establishment of domestic battery manufacturing facilities like Amita Technology's gigafactory. In Malaysia, BMI said Geely's large-scale commitment is attracting further supply chain investments, reinforcing its position as a regional automotive manufacturing powerhouse. However, it noted that the most significant announcement of the quarter in terms of project value is Contemporary Amperex Technology Co Ltd's investment in Indonesia. "This major gigafactory project is finally taking shape and represents another example of mainland Chinese companies leveraging Asean as a launch platform. "The project, known as the Indonesia Battery Integration Project, aims to cover the entire battery value chain—from nickel mining and processing to battery materials, manufacturing, and recycling—within the FHT Industrial complex," it said. Meanwhile, BMI reported tracking 30 new automotive manufacturing investments across Asia in the first quarter of 2025 (1Q25), with a total value of US$10.6 billion. This represents a significant decrease in the number of projects tracked from 41 in the previous quarter. BMI noted that the total investment value for projects with available information was significantly higher in 1Q24 at US$54.6 billion and also 4Q24 at US$54.6 billion. Throughout 2Q25, BMI said it saw a continued increase in the number of EV-related investments, with a number of new projects announced in the growing EV supply chain in Asian emerging markets such as India, Indonesia, Thailand and mainland China. Nevertheless, BMI said the tariffs announced by the United States President Donald Trump on March 26, have had a negative impact on certainty investment patterns in Asia, especially for the automotive sector. "Reflecting this, the number of investments identified in Asia fell sharply from 41 in 1Q25 to just 30 in 2Q25. "These tariffs, aimed at protecting US national security and manufacturing, have led companies to reassess their global strategies, with Japan emerging as the most affected market," it said. BMI also noted that both Nissan's and Toyota's strategic adjustments reflect the broader recalibration among global automakers as they respond to new tariff regimes and intensifying competition in the EV market.
New Straits Times
39 minutes ago
- New Straits Times
Trump says US will sell 'so much' beef to Australia
WASHINGTON/CANBERRA: The United States will sell "so much" beef to Australia, US President Donald Trump said on Thursday after Canberra relaxed import restrictions, adding that other countries that refused US beef products were on notice. Australia on Thursday said it would loosen biosecurity rules for US beef, something analysts predicted would not significantly increase US shipments because Australia is a major beef producer and exporter whose prices are much lower. "We are going to sell so much to Australia because this is undeniable and irrefutable Proof that US Beef is the Safest and Best in the entire World," Trump said in a post on Truth Social. "The other Countries that refuse our magnificent Beef are ON NOTICE," the post continued. Trump has attempted to renegotiate trade deals with numerous countries he says have taken advantage of the United States, a characterisation many economists dispute. "For decades, Australia imposed unjustified barriers on US beef," US Trade Representative Jamieson Greer said in a statement, calling Australia's decision a "major milestone in lowering trade barriers and securing market access for US farmers and ranchers." Australia is not a significant importer of beef but the United States is, and a production slump is forcing it to step up purchases. Last year, Australia shipped almost 400,000 metric tons of beef worth US$2.9 billion to the United States, with just 269 tons of US product moving the other way. Australian officials say the relaxation of restrictions was not part of any trade negotiations but the result of a years-long assessment of US biosecurity practices. Canberra has restricted US beef imports since 2003 due to concerns about bovine spongiform encephalopathy (BSE), or mad cow disease. Since 2019, it has allowed in meat from animals born, raised and slaughtered in the United States but few suppliers were able to prove that their cattle had not been in Canada and Mexico. On Wednesday, Australia's agriculture ministry said US cattle traceability and control systems had improved enough that Australia could accept beef from cattle born in Canada or Mexico and slaughtered in the United States. The decision has caused some concern in Australia, where biosecurity is seen as essential to prevent diseases and pests from ravaging the farm sector. "We need to know if (the government) is sacrificing our high biosecurity standards just so Prime Minister Anthony Albanese can obtain a meeting with US President Donald Trump," shadow agriculture minister David Littleproud said in a statement. Australia, which imports more from the United States than it exports, faces a 10 per cent across-the-board US tariff, as well as 50 per cent tariffs on steel and aluminium. Trump has also threatened to impose a 200 per cent tariff on pharmaceuticals. Asked whether the change would help achieve a trade deal, Australian Trade Minister Don Farrell said: "I'm not too sure." "We haven't done this in order to entice the Americans into a trade agreement," he said. "We think that they should do that anyway."
