Reuters: Asian policy makers appeared to see little mid-term respite for the dollar despite the greenback holding firm on Tuesday against most of its counterparts, while stocks also traded down ahead of the U.S. corporate earnings season.
Asian authorities worried about currency appreciation have moved to stem inflows of hot money that could also impact on their exports following an IMF meeting at the weekend that did little to reassure markets.
Most European bourses also opened down with Britain’s FTSE 100 off 0.4 percent, Germany’s DAX down 0.9 pct and Europe’s FTEUROFIRST 300 0.4 percent lower.
China’s State Administration of Foreign Exchange (SAFE) on Tuesday urged market players to get used to two-way exchange rate movements, saying that its policy of currency reform did not necessarily equate to yuan appreciation.
But the country’s foreign exchange regulator said investors were still firm in their belief that the yuan would rise and that this would help drive capital to China over the rest of the year.
And Thai Finance Minister Korn Chatikavanij said the baht was likely to rise further because of U.S. policy and the Thai government would consider measures to curb any excessive speculation in the currency.
Thailand’s cabinet agreed to impose a 15 percent withholding tax on capital gains and interest income from foreign investment in government debt in a bid to brake the baht, which has climbed to its highest level since the 1997 Asian financial crisis.
Japan said it would wade into the foreign exchange market anew if need be to weaken the yen, despite widespread disapproval by its rich-country peers of a rare bout of dollar buying last month.
The China Securities Journal said in a front-page editorial that Beijing would have to control the pace of yuan appreciation and refrain from raising interest rates to ward off inflows of speculative capital.
“The financial crisis could escalate into a currency crisis,” the newspaper said. “There will be no winner.”
Asian shares were trading lower with indices consolidating after recent gains amid caution ahead of the corporate earnings season.
The dollar was up against most Asian currencies, although some traders said short-term profit-taking was likely responsible and further falls still possible. The dollar index .DXY was up 0.26 percent at 77.640, still close to its lowest in nearly nine months.
Around 0700 GMT, the Hang Seng was down 0.35 percent at 23,126.35, Japan’s Nikkei was down 2.09 percent at 9,388.64, Korea Composite Stock Price Index was down 1.16 percent at 1,868.04 and Singapore’s Straits Time Index was down 0.22 percent at 3,156.60 points.
China bucked the trend with the key stock index reversing earlier losses to close up 1.3 percent on Tuesday, its highest in five months.
TALK DOWN EXPECTATIONS
Chinese officials have repeatedly tried to talk down expectations of a yuan appreciation since freeing the currency from a 23-month peg to the dollar on June 19. But with the yuan up nearly two percent against the dollar since late August, concern is mounting that China could soon face a tide of hot money.
“Currency reform does not equate to yuan appreciation. The emphasis is more on the improvement of the currency formation mechanism,” SAFE said in a report about China’s first-half balance of payments.
In Tokyo, a day after the dollar fell to a new 15-year low of 81.37 yen on ECB, one trader said the market expected a rate of between 81.50 and 83.00 ahead of a meeting of G20 finance chiefs in South Korea later this month.
Gold edged lower pressured by a stronger dollar, but expectations of further monetary easing by the U.S. Federal Reserve are likely to support the bullion bull run. Spot gold inched down to $1,346.10 an ounce in early trading reversing gains in the previous session.
At 0700 GMT, Asian stocks were down 1.46 percent with the MSCI Asia ex-Japan index .MIAPJ0000PUS at 454.26.
China’s central bank auctioned 22 billion yuan ($3.3 billion) of one-year bills in open-market operations on Tuesday at a yield of 2.0929 percent, unchanged from the last sale and in line with market expectations.
Traders had expected the People’s Bank of China to keep the one-year bill yield steady because of its reluctance to send any market signals that it wants to lift benchmark interest rates.