'Asian crisis in reverse' as currencies soar on the dollar
Item 1 of 2 A man walks past an advertisement promoting China's renminbi (RMB) or yuan, U.S. dollar and Euro exchange services at foreign exchange store in Hong Kong, China, August 13, 2015. German Bund yields edged up on Thursday following efforts by China's central bank to slow a sharp descent of the yuan that has prompted investors this week to seek safe-haven assets. REUTERS/Tyrone Siu/File Photo
Summary Taiwan dollar rockets to record gains
Sing dollar near decade high, ringgit, yuan, baht and won rise
'Asian demand for dollars is waning' - analyst
SINGAPORE/SHANGHAI, May 6 (Reuters) - A wave of dollar selling in Asia is an ominous sign for the greenback as the world's export powerhouse starts to question a decades-long trend of investing its big trade surpluses in U.S. assets.
Ripples from Friday and Monday's record rally in the Taiwan dollar are now spreading outward, driving surges for currencies in Singapore , South Korea , Malaysia , China and Hong Kong .
The Reuters Tariff Watch newsletter is your daily guide to the latest global trade and tariff news. Sign up here.
The moves sound a warning for the dollar because they suggest money is moving in to Asia at scale and that a key pillar of dollar support is wobbling.
Advertisement · Scroll to continue
While Tuesday brought a measure of stability, following a stunning 10% two-day leap for Taiwan's currency, Hong Kong's dollar was testing the strong end of its peg and the Singapore dollar has soared close to its highest in more than a decade.
"To me, it has a very sort of Asian-crisis-in-reverse feel to it," said Louis-Vincent Gave, founding partner of Gavekal Research, in a podcast, due to the speed of the currency moves.
In 1997 and 1998 capital flight sank currencies from Thailand to Indonesia and South Korea and left the region determined to accumulate dollars in the aftermath.
"Since the Asian crisis, Asian savings have not only been massive, but they've had this tendency to be redeployed into U.S. Treasuries. And now, all of a sudden, that trade no longer looks like the one-way slam dunk that it had been for so long," said Gavekal's Gave.
Advertisement · Scroll to continue
Traders in Taiwan had reported difficulty executing trades, such was the one-sided wave of dollar selling, and speculated it had been at least tacitly endorsed by the central bank.
Dealers said volumes were heavy in other Asian markets.
At its heart, the break has been triggered by U.S. President Donald Trump's aggressive tariffs, analysts said, rattling investors' confidence in the dollar and upending the flow of trade dollars into U.S. assets in two places.
First, exporters especially in China can expect fewer receipts as tariffs cut access to U.S. customers. Second, fear of a U.S. downturn casts a shadow over U.S. asset returns.
"Trump's policies have weakened the market's confidence in the performance of U.S. dollar assets," said Gary Ng, senior economist at Natixis.
Some are speculating on what markets have termed a "Mar-a-Lago agreement," he said, or a deal - named after Trump's gilded Florida resort - to weaken the dollar.
Ad Break Coming Up NEXT Stay Next About Connatix V580873
1/1 Skip Ad Continue watching after the ad Visit Advertiser website GO TO PAGE
Taiwan's Office of Trade Negotiations denied tariff talks in Washington last week had involved the topic of foreign exchange.
TALK BECOMES REALITY
Asia's biggest piles of dollars sit in China, Taiwan, South Korea and Singapore, which combined number in the trillions.
In China alone, foreign currency deposits at banks - mostly dollars and mostly held by exporters - were $959.8 billion at the end March, the highest in nearly three years.
On top of that are layered investments funded in these currencies, which have low borrowing costs by global standards and investments in U.S. stocks and bonds by pension and insurance funds, which have tended to keep foreign exchange hedges small due to the costs involved.
There are signs the dollar view is shifting from all corners. Goldman Sachs said in a note on Tuesday that investor clients had recently flipped from short yuan positions, to long positions, or in other words, they are shorting the U.S. dollar expecting further weakness.
A popular trade that involved buying cheap U.S. dollars in the Hong Kong dollar forwards market , known in markets as the gift that never stopped giving, also went into reverse since it rested on the Hong Kong dollar staying still.
"Macro funds and leveraged players have hundreds of billions of dollars in the HKD forwards free-money trade, and now they are unwinding," said Mukesh Dave, chief investment officer at Aravali Asset Management, a global arbitrage fund based in Singapore.
Hong Kong's de-facto central bank said on Monday it has been reducing duration in its U.S. Treasury holdings and diversifying currency exposure into non-U.S. assets.
Rallies in Asia's bond markets suggests exporters' and long-only money may be coming home, too.
"Repatriation talk is becoming reality," said Parisha Saimbi, Asia-Pacific rates and FX strategist at BNP Paribas in Singapore, as investors and exporters are either unwinding or rushing to hedge.
"Whichever format it comes in, it suggests that the support for the dollar is shifting and it's turning lower ... I think it speaks to this idea that there is a de-dollarization in action."
UBS estimates that if Taiwan's insurance companies increased hedging ratios to their 2017-2021 averages, it could be worth some $70 billion in U.S. dollar selling.
To be sure, Taiwan's central bank has vowed to stabilise the local currency and even the island's president took the unusual step of recording a video message to insist the exchange rate was not part of U.S. trade talks.
Still, the market seems to be voting with its wallet.
"USD/TWD is a canary in the coal mine," said Brent Donnelly, veteran trader and president at analytics firm Spectra Markets.
"Asian demand for U.S. dollars and Asian central bank desire to support the U.S. dollar is waning."
Reporting by Tom Westbrook, Vidya Ranganathan, Ankur Banerjee and Rae Wee in Singapore, Jiaxing Li in Hong Kong and Winni Zhou and Samuel Shen in Shanghai; Writing by Tom Westbrook; Editing by Kim Coghill
Our Standards: The Thomson Reuters Trust Principles. , opens new tab
Share X
Link
Purchase Licensing Rights
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
3 minutes ago
- Reuters
India's PB Fintech posts rise in quarterly profit on health insurance boom
July 31 (Reuters) - India's PB Fintech ( opens new tab reported a 40% rise in first-quarter profit on Thursday, as more consumers turned to digital platforms for insurance products. Analysts said PB Fintech benefited from increasing demand in India's largely untapped insurance market. Through its Policybazaar platform that helps users select insurance coverage and Paisabazaar, which matches borrowers with lenders, the company is cashing in on India's digital finance boom. The company posted a consolidated net profit of 845.9 million rupees ($9.7 million) for the three months ended June 30, up from 601.8 million rupees a year earlier. PB Fintech's revenue from operations rose 33% to 13.48 billion rupees in the quarter, led by a 40% jump in insurance broking, its largest segment. The company's insurance premium grew 36%, led by a 65% rise in new health insurance policies. ($1 = 87.5130 Indian rupees)
Reuters
3 minutes ago
- Reuters
Ferrari has scope to trim US premium after EU tariff deal
MILAN, July 31 (Reuters) - Luxury sports-car maker Ferrari ( opens new tab could trim a premium introduced in April for some cars sold in the United States once the lower 15% tariff for European imports takes effect, it said on Thursday. The company also said it was more confident in its financial forecasts for the year but in the absence of upgraded guidance, its Milan-listed shares fell as much as 11%. A Milan-based trader said profit-taking after fairly predictable results was the cause of the fall. As part of a wider trade agreement, the United States and the European Union on Sunday agreed on a 15% tariff on imports of EU-made products, replacing a 27.5% fee for cars that U.S. President Donald Trump imposed in April. Because of the agreement, Italy-based Ferrari said it was removing the 50 basis point risk to its profit margins it introduced earlier this year based on the initial tariff. Ferrari is also preparing to revise a price increase of up to 10% it introduced in April on some cars it exported to the U.S.. "Whenever (the new tariff scheme) becomes effective, we will apply it, for now we stick to our (current) commercial policy," CEO Benedetto Vigna said in a media call. Vigna said that almost all cars the company sold in the U.S. during the second quarter were shipped before the 27.5% tariff was introduced, so the price increases were not applied to them. Despite the reduced tariff impact, and the prospect of industrial costs lower than initial estimates in the second part of the year, Ferrari only said it had "stronger confidence" in the 2025 guidance and reiterated existing forecasts for its full-year results. Vigna said he had test driven Ferrari's first all-electric model that is due to go on sale next year and that analysts will glimpse for the first time at an event in October. Analysts at Citi described Ferrari's second-quarter results as decent. They added that the focus was shifting to how the profit margin would perform in the coming months, with shipments and selling prices expected to slow. "It remains to be seen if Ferrari can keep average selling prices growing under a slowing market and tougher second half," they said in a note. Ferrari's forecasts for the full year 2025 include one for earnings before interest, tax, depreciation and amortisation growing to at least 2.68 billion euros ($3.07 billion). Its order book extends into start of 2027, Vigna said. In the second quarter, net revenues rose 4% to 1.787 billion euros, slightly below an analyst consensus of 1.82 billion euros in a Reuters poll. EBITDA rose 6% to 709 million euros, matching an analyst consensus of 707 million euros. Robust pricing power and richer product offerings supported the result, following deliveries of models of Ferrari's SF90 XX and the 12Cilindri families, as well as increased personalisation of cars. ($1 = 0.8750 euros)
Reuters
3 minutes ago
- Reuters
Cigna's health services business powers Q2 earnings beat
July 31 (Reuters) - Cigna (CI.N), opens new tab beat Wall Street estimate for second-quarter profit on Thursday, helped by strength in its pharmacy benefit management business. The company was among the last major health insurers to report quarterly results, in a period marked by high medical costs in government-backed plans. Cigna, however, was able to shield itself from the broader industry trend as it divested its Medicare business to Health Care Service Corp and relies more on pharmacy benefits and fee-based commercial insurance. The company has intentionally structured its portfolio to suit current conditions, CEO David Cordani said on a post-earnings call. "We have no exposure to Medicaid or Medicare, instead choosing to serve these customers through our Evernorth services portfolio." Medicaid plans are for low-income people, while Medicare Advantage is for people aged 65 and older or with disabilities. Revenue from Cigna's Evernorth healthcare services unit, which includes its pharmacy benefit management business, rose 17% to $57.83 billion during the quarter. Pharmacy benefit managers help negotiate drug prices and coverage with manufacturers on behalf of employers and health plan clients. But the company also said it expects costs to remain elevated throughout the year and into next year, and has priced 2026 accordingly. It reported a medical care ratio — the percentage of premiums spent on medical care — of 83.2% during the quarter, higher than the 82.3% a year ago. Cigna attributed the rise to higher stop-loss medical costs, which protect employers from large claims. Shares of the company dropped 6% in morning trading. Baird analyst Michael Ha said the stock dip may reflect stop-loss concerns, but called the reaction "overdone". Cigna forecast 2025 medical care ratio to be between 83.2% and 84.2%, with the third-quarter ratio expected to be toward the upper end of that range. Its second-quarter adjusted per-share profit of $7.20 topped analysts' estimate of $7.15, according to data compiled by LSEG. The company maintained its annual adjusted profit forecast of at least $29.60 per share, while analysts expect $29.68 per share.
