Asian dealers resume dollar-selling after Trump rally

AFP: The dollar edged back down in Asia yesterday as a Donald Trump-inspired surge petered out with analysts tipping the US unit to continue weakening.
The resumption in the greenback’s sell-off reversed early gains in Tokyo, which ended down for a third day, though Hong Kong surged to new peaks in mixed equity trade.

Forex markets have been on a roller-coaster ride the past few days after US Treasury Secretary Steven Mnuchin sent the dollar spiralling to multi-year lows by saying at the Davos meeting of business and political leaders that a weaker unit was “good for us”. That came as Commerce Secretary Wilbur Ross defended this week’s stinging US tariffs on solar panels and warned of further retaliation against nations Washington felt had broken the rules, ramping up fears of a possible global trade war.

Traders rushed back into the greenback, though, after Trump, who arrived at the Swiss resort on Thursday, restated traditional US policy of favouring a strong dollar and said Mnuchin’s comments were taken out of context.

“You tend not get too many comments on the dollar’s value from either treasury secretaries or presidents; it’s a rare event,” Shahab Jalinoos, global head of foreign-exchange strategy at Credit Suisse, told Bloomberg News. “So the market tends to pay attention when they do happen. The market can easily imagine the idea that this White House might well change its stance on the currency.”

However, the recovery soon faded and dollar selling resumed, with the euro heading back to its three-year highs, helped by European Central Bank boss Mario Draghi showing little concern about the effect of a stronger unit on the eurozone.

But Draghi did voice concern over the “volatility” in currency markets. He spoke after the ECB left its bond-buying stimulus for the eurozone in place.

“The euro-buying sentiment is expected to stay strong as investors are convinced that the EU remains on course for (monetary) normalisation this year,” Masakazu Satou, senior analyst at Gaitame Online told AFP, referring to a wind-down of the crisis-era stimulus.

And Stephen Innes, head of Asia-Pacific trading at OANDA, tipped the greenback to see more losses owing to Trump’s desire to help US manufacturers and exporters as part of his America First policy.

“It’s obvious to anyone that the US administration trade policy would benefit from the weaker dollar policy, but I suspect Trump’s latest... comments are more about optics and little more than a case of temporarily taming the dollar bear ahead of his Davos speech” on Friday, he said. 

“The weaker dollar narrative remains intact for 2018.”

While the yen edged back up, it was still off the levels below 109 against the dollar seen in Asia on Thursday, and that gave some support to the Nikkei, which ended the morning session 0.2 percent higher. Hong Kong jumped 1.6 percent after sinking almost one percent on profit-taking, while Shanghai added 0.3 percent and Seoul rose 0.5 percent. Jakarta, Kuala Lumpur and Manila also rose while Singapore was flat. But Wellington, Taipei and Bangkok retreated.

Sydney was closed for a public holiday.

In early European trade London and Paris each rose 0.2 percent, while Frankfurt was flat.