US currency manipulation threat puts Asia on guard


Singapore, Malaysia, and Vietnam may find themselves labelled as currency manipulators for the second time
Newsfeed24 Oct 2019
Photo credit: AFP Photo


Market news selected by the DBS Chief Investment Office


Asia is bracing for the latest US Treasury report on foreign currency manipulators, coming in the middle of a trade war that shows no sign of ending.

The twice-yearly report is due in coming weeks and will likely see the return of Singapore, Malaysia, and Vietnam on the watchlist. The three Southeast Asian nations were cited in the May report for the first time, and the Treasury says it keeps newcomers on the list for at least two straight reports. China – which was formally labelled a currency manipulator in August – Japan, and South Korea were the other Asian economies cited at the time.

For China, dynamics around trade negotiations with the US may influence whether the nation retains its “currency manipulator” label. Both countries appear to have agreed on a “phase one” deal for now, though Chinese officials have yet to confirm any agreement. Here is a look at how some of the countries stack up against the Treasury’s criteria:

Singapore: The city state found its place on the watchlist in May for its massive Current Account surplus of almost 18% of GDP and intervention in the foreign exchange market.

Unlike other central banks, the Monetary Authority of Singapore (MAS) conducts policy by intervening in the foreign currency market rather than setting interest rates. And it has made it clear that the intervention is to keep inflation under control, not to manipulate the currency for export advantage.

The central bank has pledged more transparency in its foreign exchange purchases, a move lauded by the Treasury in its last report.

Malaysia: Malaysia was cited for its USD27b goods surplus with the US and a Current Account balance that squeaked just above the 2% mark. The trade surplus with the US does not appear to have shown much improvement, given that its year-to-date tally earlier this month is about unchanged from the same period in 2018. On the Current Account, the surplus has widened since the Treasury’s May report, reaching 3.06% of GDP in the second quarter.

Vietnam: What saved Vietnam from violations in all three categories in May was the Treasury’s interpretation that foreign exchange intervention was made in both directions in order to better link the Vietnamese dong to the greenback, and that there was “reasonable rationale” for rebuilding inadequate reserves. Analysts see that patience running out for the next report, especially with Vietnam exceeding both of the other two thresholds.

Rest of Asia: Thailand, which successfully dodged the watchlist in May’s report, could find itself in the crosshairs this time as its trade surplus with the US in the 12 months through August nears USD20b and its Current Account surplus remains above the 2% threshold.

Japan is likely to be flagged on two of three violations again – a goods trade surplus with the US that has already climbed to more than USD48b so far this year, and a large Current Account balance. In its latest monthly report on the issue, Japan maintains that it is still not intervening in the foreign exchange market. – Bloomberg News.

The US Dollar Index (DXY) slipped 0.04% to 97.491 on Wednesday (23 October), the pound rose 0.31% to USD1.2912, the euro gained 0.04% to USD1.1130, and the Japanese yen weakened 0.18% to 108.69 per dollar.


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