The falling U.S. dollar was a mixed blessing for Asian countries this week. While currencies surged, the region's exporters grew worried, and Asia's foreign exchange officials issued warnings of possible intervention.
After recently trading at 15 year highs, the U.S. dollar continued to fall against a number of currencies in Asia this week. Initially the greenback's broad retreat saw the yen, won, baht, rupiah, Singapore dollar and New Taiwan dollar all appreciate, despite Asia's weak economic fundamentals.
But David Simmonds, a regional currency strategist from City Group in Singapore, says the falling dollar spells trouble for Asian exporters. "That essentially comes down to the question of why the U.S. dollar is falling," Mr. Simmonds said. "The U.S. dollar is falling because of concerns about the U.S. economy and the U.S. capital inflows. In other words, it's a weak U.S. story rather than a strong Europe or Japan story. And for an open, export dependent regional economy like Asia, that is, I think, quite a challenging set of circumstances, frankly."
Mr. Simmonds doesn't expect Asian currencies will appreciate further because the region's central banks want to keep exports competitively priced. "I'm sure what we'll see," he says, "is a lot of intervention, verbal intervention, physical intervention in markets, Asian central banks selling their own currency to try to prevent significant currency strength from here, to try to protect export sector competitiveness, and try to keep overall monetary conditions on a fairly loose track."
Warning sounds are already being heard from Japan. On Friday, financial officials said recent currency movements did not reflect the country's fragile economy and warned of possible action to stem the appreciating yen.
Further yen strengthening makes the price of Japanese exports more expensive overseas and could jeopardise economic growth. On Friday the yen was trading at 120.36 to the dollar.
Singapore's Monetary Authority also said it might intervene to curb volatile exchange rates. On Friday, the city-state's dollar broke a two day rally, falling 0.4 percent to end the week at 1.7 against the dollar.
Elsewhere in Asia on Friday, the Thai baht fell for the first time in six days and the Korean won dropped, while the new Taiwan dollar ended the week little changed.
For Australia, however, there's a benefit to this week's fluctuating currency values. Earlier the beleaguered Australian dollar rose to a three month high against the U.S. dollar, and analysts say that could stave off another hike in interest rates.