Trade war worries push Asian central banks to curb currency intervention

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Some of emerging Asia’s biggest central banks look to be dialling back their interventions in the currency market.

The central banks of India and Malaysia have reduced the size of some derivatives positions they use to weaken their currencies. Taiwan has allowed its currency to surge against the US dollar in recent weeks and dropped hints it would be comfortable with more if the moves were “orderly”. South Korea’s giant national pension fund has ended its five-month support of the won.

A major reason for these moves is a simple change in the market landscape: the dollar has tumbled more than 7 per cent this year, easing pressure on emerging market currencies. But strategists and investors also point to the risk of a backlash from US President Donald Trump, amid rising speculation that currency policies will be on the table during a series of ongoing – and high-stakes – trade negotiations.

The threat of being labelled a currency manipulator by the US, especially during this period of tariff negotiations, will act as a deterrent

Rajeev De Mello, investment manager

“The threat of being labelled a currency manipulator by the US, especially during this period of tariff negotiations, will act as a deterrent to further heavy FX intervention in local markets,” said Rajeev De Mello, a Geneva-based portfolio manager at GAMA Asset Management.

The shifting approach of Asia’s central banks to defending their currencies reinforces the sweeping changes in global markets since the election of Trump, whose on-again, off-again tariff threats have roiled asset prices and raised once unthinkable questions about the US dollar’s place in the global trading system.

South Korea confirmed last month that it had held currency talks with the US, sending the won higher amid talk that Trump wants a weaker dollar. But White House chief economist Stephen Miran has denied the idea Washington is working on secret deals to depreciate the dollar, saying the US continues to have a strong dollar policy.

The US dollar has plummeted against major currencies this year, suffering drops of around 10 per cent against the euro and the Swiss franc.