G7 targets China in draft communique
Calls to revalue yuan: Japanese officials appear to be backing off intervention
The Group of Seven will issue an unprecedented call to "other major economic areas" such as China to help realign global foreign exchange rates, according to a draft communiqué circulating ahead of the G7 finance ministers meeting in Dubai this weekend.
While no particular country was mentioned in the draft -- which helped send the U.S. dollar tumbling against major currencies including the loonie -- it was clearly aimed at pressuring China into letting its currency appreciate.
"We continue to monitor exchange markets closely and co-operate as appropriate," according to a copy of the draft obtained from a European G7 official.
"In this context, we will strengthen the dialogue with other major economic areas to promote a smooth adjustment of international imbalances, based on market mechanisms."
Though it seems vague and could be radically altered by the time an official statement is released today, such a reference would be a seismic shift from the usual agreement to just monitor exchange markets closely and co-operate as appropriate.
Both China and Japan have been in under pressure from the United States to let their currencies appreciate and the U.S. dollar fall to help spark a revival in U.S. exports and a reduction its US$500-billion current account deficit.
Washington has become particularly vocal ahead of the U.S. presidential election in November, 2004.
China's yuan is held in a tight band around 8.3 to the U.S. dollar while Japan has spent US$77.6-billion intervening in currency markets this year to prevent the yen from soaring and sideswiping its fragile recovery.
Yesterday, it appeared Japanese officials may indeed be backing off intervention.
Toshihiko Fukui, the Bank of Japan governor, said "it's not good to react hastily to currency moves," suggesting the bank may continue to let the yen strengthen after it gained more than 3% this week against the dollar.
Traders took the draft communique and the BOJ comments as a green light to sell the dollar.
The yen stormed to a 2 1/2-year high of ¥114.04 per U.S. dollar, up from ¥115.25 on Thursday. The euro, British pound and Swiss franc all gained on the greenback while the Canadian dollar zoomed US0.54¢ higher to US74.02¢, its highest level since early July.
News that Canadian wholesale sales rose for the first time in six months in July also supported the loonie. Sales increased 1.1% to $36.2-billion, Statistics Canada, fuelling hope the economy's second-quarter contraction might be short-lived.
Analysts speculated yesterday's breakdown in the greenback could be the start of a second leg down for the currency after its summer reprieve. "We've all been waiting for the second shoe to drop and this may well be the trigger," Doug Porter, senior economist at BMO Nesbitt Burns said. "The U.S. dollar has been in a period of calm for the last few months, buoyed by signals the U.S. economy has been strengthening, but lets face it, it's still got all those huge structural problems overhanging it, first and foremost the US$500-billion current deficit."
But analysts also warned against reading too much into the draft communiqué or BOJ comments. The BOJ is unlikely to tolerate too much of a move up in the yen.
"The danger is the dollar's downtrend could accelerate," Marc Chandler, chief currency strategist at HSBC USA, said. "Even though that might sound good and it reduces the U.S. current account deficit ... the IMF acknowledged that a stronger euro and a stronger yen could derail their recoveries."
Mr. Chandler was urging his clients to buy U.S. dollars on their way out the door yesterday in anticipation of a yen correction next week.
China, too, has staunchly resisted calls to revalue its currency. The China Daily, in a commentary seen as reflecting the views of the government, dismissed repeated U.S. calls for a stronger yuan, also known as the renminbi, as futile. "Making China the scapegoat can perhaps help some U.S. politicians score cheap political points, [but] it has nothing to do with the solution of their real problems," the paper said yesterday.
© Copyright 2003 National Post
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Calls to revalue yuan: Japanese officials appear to be backing off intervention
The Group of Seven will issue an unprecedented call to "other major economic areas" such as China to help realign global foreign exchange rates, according to a draft communiqué circulating ahead of the G7 finance ministers meeting in Dubai this weekend.
While no particular country was mentioned in the draft -- which helped send the U.S. dollar tumbling against major currencies including the loonie -- it was clearly aimed at pressuring China into letting its currency appreciate.
"We continue to monitor exchange markets closely and co-operate as appropriate," according to a copy of the draft obtained from a European G7 official.
"In this context, we will strengthen the dialogue with other major economic areas to promote a smooth adjustment of international imbalances, based on market mechanisms."
Though it seems vague and could be radically altered by the time an official statement is released today, such a reference would be a seismic shift from the usual agreement to just monitor exchange markets closely and co-operate as appropriate.
Both China and Japan have been in under pressure from the United States to let their currencies appreciate and the U.S. dollar fall to help spark a revival in U.S. exports and a reduction its US$500-billion current account deficit.
Washington has become particularly vocal ahead of the U.S. presidential election in November, 2004.
China's yuan is held in a tight band around 8.3 to the U.S. dollar while Japan has spent US$77.6-billion intervening in currency markets this year to prevent the yen from soaring and sideswiping its fragile recovery.
Yesterday, it appeared Japanese officials may indeed be backing off intervention.
Toshihiko Fukui, the Bank of Japan governor, said "it's not good to react hastily to currency moves," suggesting the bank may continue to let the yen strengthen after it gained more than 3% this week against the dollar.
Traders took the draft communique and the BOJ comments as a green light to sell the dollar.
The yen stormed to a 2 1/2-year high of ¥114.04 per U.S. dollar, up from ¥115.25 on Thursday. The euro, British pound and Swiss franc all gained on the greenback while the Canadian dollar zoomed US0.54¢ higher to US74.02¢, its highest level since early July.
News that Canadian wholesale sales rose for the first time in six months in July also supported the loonie. Sales increased 1.1% to $36.2-billion, Statistics Canada, fuelling hope the economy's second-quarter contraction might be short-lived.
Analysts speculated yesterday's breakdown in the greenback could be the start of a second leg down for the currency after its summer reprieve. "We've all been waiting for the second shoe to drop and this may well be the trigger," Doug Porter, senior economist at BMO Nesbitt Burns said. "The U.S. dollar has been in a period of calm for the last few months, buoyed by signals the U.S. economy has been strengthening, but lets face it, it's still got all those huge structural problems overhanging it, first and foremost the US$500-billion current deficit."
But analysts also warned against reading too much into the draft communiqué or BOJ comments. The BOJ is unlikely to tolerate too much of a move up in the yen.
"The danger is the dollar's downtrend could accelerate," Marc Chandler, chief currency strategist at HSBC USA, said. "Even though that might sound good and it reduces the U.S. current account deficit ... the IMF acknowledged that a stronger euro and a stronger yen could derail their recoveries."
Mr. Chandler was urging his clients to buy U.S. dollars on their way out the door yesterday in anticipation of a yen correction next week.
China, too, has staunchly resisted calls to revalue its currency. The China Daily, in a commentary seen as reflecting the views of the government, dismissed repeated U.S. calls for a stronger yuan, also known as the renminbi, as futile. "Making China the scapegoat can perhaps help some U.S. politicians score cheap political points, [but] it has nothing to do with the solution of their real problems," the paper said yesterday.
© Copyright 2003 National Post
