International | Apr 24 2006
A revaluation of the Chinese currency has long been the goal of the US administration at the White House. It is now gaining some high-powered support from both the G7 and the International Monetary Fund (IMF).
At meetings last week both groups agreed it was in the best interests of the global economy for the US dollar to depreciate, as this would assist in correcting some global imbalances such as the level of the US current account.
Analysts at Singapore based DBS believe the next potential trigger for US dollar weakness is Federal Reserve chairman Ben Bernanke’s testimony before the US Joint Economic Committee, as in their view the speech will signal that the program of interest rate increases will be halted, at least temporarily.
In DBS’s view, such an approach would be appropriate given the current signs of weakness in the US housing sector. While this is likely to result in further US dollar weakness, DBS notes such an outcome would be both beneficial for addressing the increasing current account deficit and necessary as the currency would have to become the policy tool in the absence of further interest rate increases.
The likelihood of further weakness in the US dollar would also be bullish for Asian currencies generally according to DBS, so it has suggested some currencies it considers most likely to gain in short dollar positions. These include the Korean won, Taiwan and Singapore dollars, the Malaysian ringgit and Indonesian rupiah.
