German minister hits out at US over China forex criticism
German Economy Minister Rainer Bruederle said Wednesday US criticism of China's forex policy was largely due to the fact that Washington "had not managed to control their problems" with competitiveness.
The United States, which accuses China of undervaluing its currency to stimulate its exports, "are on the eve of elections, and have not managed to master their own problems," the minister said during a visit to China.
He said this accounted for the US position in in the argument, which dominated debate at the International Monetary Fund meeting in Washington at the weekend.
US Treasury Secretary Timothy Geithner had said the IMF should play a stronger role in surveillance of the global financial system, in comments apparently aimed at China.
The US Congress has moved to slap retaliatory sanctions on Chinese goods and Washington has ratcheted up the pressure by hinting that China may not be allowed a bigger say at the IMF unless the currency issue is resolved.
"Many of the arguments leave one thinking that the yuan is undervalued," Bruederle conceded -- in particular the massive forex reserves accumulated by China.
However, he said, "I advise our (American) friends to spare no effort" to reduce their trade deficit and improve the competitiveness of their economy.
"My concern is that they are favouring short-term solutions for electoral and partisan reasons," he added, in reference to upcoming mid-term US elections in November.
Germany was not as swift as other countries to point the finger at China in the "exchange rate war" which has seen the central banks of various countries intervene to weaken their currencies.
The problem "plays a lesser role for the German economy than for others," Bruederle said, as German products are widely in demand and less sensitive to pricing than others.
The vigorous revival of the German economy owes much to its exports to Asia, notably China. Trade between the two countries should reach 100 billion euros this year, according to the minister.
Berlin also sided with China in solidarity since Germany was also accused, in particular by the United States, of favouring exports at the expense of its partners.
"At the moment I have more criticism of the American Treasury secretary than of China," Bruederle said.
The U.S. dollar fell to a 2010 low against a basket of currencies on Thursday after Singapore let its currency strengthen, but analysts saw increasing chances of a dollar rebound with negative sentiment so high.
The Australian dollar, which boasts the highest yield among major currencies, soared to its strongest level since the currency was floated in 1983 to US$0.9994, as investors dumped the U.S. currency on expectations the Federal Reserve would again start printing money next month.
Singapore's central bank widened the currency trading band in which it maintains the Singapore dollar, propelling the currency to a record high. Singapore is suffering from rising inflation and the move was seen as a tightening of policy - the opposite of what the U.S. Federal Reserve is expected to do. The Chinese yuan hit its highest closing level against the U.S. dollar since July 2005.
"Singapore is often seen as a bellwether for the rest of the Asian currencies," said Firas Askari, head of FX trading at BMO Capital Markets in Toronto. "It opens the way for the region to have currency gains (against the U.S. dollar)."
The dollar index .DXY, which tumbled 1 percent to its weakest since December at 76.259, is on course for a test of trendline support at 75.95, with its November low of 74.17 then not far away. The 75.95 target is the trendline from two major lows in July 2008 and in November 2009.
The euro surged to a more than eight-month high of $1.4123 on trading platform EBS and faces near-term resistance at $1.4195, the January 25 high. Traders said the euro still has room to go, with strong resistance not seen until $1.45. The pair was last at $1.4073, up 0.8 percent.
After the euro failed to crack $1.40 the previous session, the currency's moves caught some players by surprise as they had been expecting more consolidation. It triggered stops around $1.4030 and then $1.4050 in Asia and subsequently cracked the $1.41 handle in Europe.
The Aussie last traded at US$0.9951, up 0.5 percent, with traders saying option barriers at $1.0000 were slowing the rally. It has gained about 11 percent this year and is up more than 20 percent from a low in May.
The options market suggests the recent upward momentum in the Aussie dollar has further to run.
DOLLAR BOUNCE?
Dollar selling accelerated after the release of Federal Reserve meeting minutes this week showed policy makers were considering more measures to stimulate the economy, including adopting a price-level target or buying more bonds.
Investors will closely watch a speech by Fed Chairman Ben Bernanke on Friday, which could provide hints on what the central bank might do at its November 2-3 meeting.
Lee Hardman, currency economist at The Bank of Tokyo-Mitsubishi UFJ in London, said that judged by many metrics, dollar pessimism is now at "historically extreme levels signaling an elevated risk of a sharp correction higher for the dollar when dollar selling has reached a crescendo."
"At the end of the day, when everybody is on the boat and everybody is doing the same way, it doesn't take much to make the boat go the other way," BMO Capital's Askari said.
The dollar could see a rebound if the Fed announces asset purchases of less than $1 trillion after its meeting in November, which would disappoint some market participants hoping for a bigger move and ease concerns about a debasement of the U.S. currency.
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