How did we get to the point that China’s economist are on the side of the truth and our economists the side of deception?…
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U.S. is currency war’s “tomb maker”: China economist
An employee counts U.S. dollar banknotes at a branch of the Industrial and Commercial Bank of China in Huaibei, Anhui province in this May 25, 2010 file photo.
Credit: Reuters/Stringer
BEIJING | Thu Oct 14, 2010 6:39am EDT
BEIJING (Reuters) – The United States fired the first shot in the currency war and the rest of the world must be on guard for its deliberate strategy to devalue the dollar, a Chinese economist said in an official newspaper on Thursday.
In a front-page commentary in the overseas edition of the People’s Daily, Li Xiangyang described the United States as the conflict’s “first maker of tomb figures,” a Chinese idiom that means someone who creates a bad precedent.
Li, head of the Asia department at the Chinese Academy of Social Sciences, a top government think tank, said continued intervention in currency markets by developed economies would deal a blow to global economic recovery.
Chinese leaders have warned before that loose monetary policies in the United States pose a serious challenge for emerging markets, but rarely in such strident language, a window onto the rising anger in Beijing.
“The dollar’s depreciation may appear to be market-driven. In reality, it is a depreciation colored by very strong, deliberate actions,” Li said in the paper, which serves as the chief mouthpiece of China’s ruling Communist Party.
The overseas edition of the People’s Daily is a smaller offshoot of the domestic edition.
Li said the Federal Reserve’s announcement that it might soon launch another round of quantitative easing by buying bonds and other financial assets had been the key factor pulling down the dollar.
The motives were plain enough, he said.
Without a weaker dollar, the United States would have no hope of meeting President Barack Obama’s goal to double exports in five years, Li said.
Dollar depreciation will also serve longer-term interests by generating inflation and easing the debt burden that the financial crisis dumped on the U.S. government.
“If the global financial crisis was about nationalizing private debt, then in the post-crisis period the urgent need of the United States is to internationalize its national debt,” he said.
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Dollar pummeled after Singapore widens FX band
LONDON (Reuters) – The U.S. dollar index hit the year’s low on Thursday while the Australian dollar flirted with parity after Singapore widened its currency’s trading band, piling more pressure on to the struggling greenback.
The Australian dollar, which boasts the highest yield among major currencies, soared to a 28-year peak at $0.9994 as investors continued to dump the U.S. dollar on expectations the Federal Reserve will again start printing money next month.
With interest rates at record lows in developed markets, yield-hungry investors are piling cash into emerging markets. The tide of money is rising ahead of an anticipated second round of quantitative easing by the Fed.
“Effectively the Singapore move is a tightening of policy and it clearly shows Asian economies are at the opposite end of the spectrum compared to the spare capacity in the U.S. economy,” said Chris Turner, head of FX strategy at ING.
The dollar index (.DXY), which tumbled 1 percent to its weakest since December at 76.259, is on course for a test of trendline support at 75.95, with its November low of 74.17 then not far away. The 75.95 target is the trendline from two major lows in July 2008 and in November 2009.
The euro, which surged to an eight-month high above $1.4100 in European dealing, faces resistance at $1.4195, the January 25 high.
With key levels having broken in most major currency pairs, investors focused on the Australian dollar’s assault on parity.
“The Aussie rally is being driven by strength in the Australian economy together with supply and a general depreciation of U.S. dollars. There are barriers at parity but it’s difficult to see the trend changing,” said Lauren Rosborough, senior currency strategist at Westpac in London.
The Aussie eased back to $0.9951 with traders saying option barriers at $1.0000 were slowing the rally. It has gained more than 11 percent so far this year and is up around 24 percent from a low in May.
The dollar also hit the latest in a succession of record lows against the Swiss franc and slid below parity with the Canadian dollar, a level not seen since April.
Commodities rallied as the dollar fell, with gold hitting a record high and silver climbing to its priciest in 30 years.
After failing to crack $1.40 the previous session, the euro’s move caught some players who had been expecting more consolidation by surprise as it triggered stops around $1.4030 and then $1.4050 in Asia and subsequently cracked the $1.41 handle in Europe. By mid-morning it had eased back to $1.4075.
CATALYST
Momentum picked up after Singapore widened the trading band for its currency and said it would maintain modest and gradual appreciation in the Singapore dollar. The Monetary Authority of Singapore sets policy by managing the Singapore dollar in a secret trade-weighted band against a basket of currencies, instead of setting interest rates.
The U.S. dollar fell, touching a record low of S$1.2888. The greenback fell 1 percent to a fresh 15-year low of 80.88 yen on EBS, despite wariness about Japanese intervention, nearing its record low of 79.75 hit in April 1995.
While traders think Japan could intervene at any moment to keep the yen in check, some market participants speculated that Tokyo may prefer to avoid intervention ahead of G20 meetings.
“Eighty yen is going to be a massive psychological level for the BOJ. It adds to the pressure for a massive round of monetary easing in Japan.” said Turner at ING.
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