Dollar Soars With Funds Liquidating to Withstand Virus Siege
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The world’s reserve currency surged, with a dollar gauge rising to a record high, as investors sold all other assets in anticipation of a prolonged coronavirus pandemic. Policy makers from Japan to Australia acted to stem a rout in markets.
The currencies of Australia, New Zealand and South Korea, the most liquid in Asia, all tumbled, following wild moves in Europe on Wednesday when the pound sank to its weakest in 35 years. Bonds and stocks across the region were dumped.
“Everything is getting sold,” said Chris Rands, portfolio manager at Nikko Asset Management Ltd. in Sydney. “We’re doing the absolute bare minimum because offering to sell anything in these markets is just crazy — we’re trying our best to hang on and see where it all shakes out. I don’t see this dollar stampede going away.”
The rush for dollars is gaining pace despite every attempt by the Federal Reserve and its peers to provide liquidity through swaps, repurchase operations and emergency rate cuts. As the virus spreads and the death toll mounts, countries from Italy to Malaysia have locked down borders, strangling commerce and trade, and leading to a cash flow crunch for companies.
The Bloomberg Dollar Spot Index gained as much as 1% to touch an all-time high, according to data going back to 2004.
The Australian dollar tumbled as much 4.6% to 55.10 U.S. cents, its weakest since 2002. The won also dropped more than 4%, prompting policymakers to warn that the move was excessive. The Indonesian rupiah sank to its weakest since the Asian financial crisis of 1998.
The sell-down is raising talk of coordinated intervention in the foreign exchange markets. The Group of Seven’s last joint currency intervention was in the wake of the 2011 Japan quake, when a statement was issued.
“We may start to hear talk of intervention in FX markets – at least an attempt to calm disorderly markets,” ING’s Chris Turner wrote in a note to clients. “The biggest fans of FX intervention will be the White House.”
So far, policy makers have acted independently, with the bulk of their measures aimed at providing dollar liquidity and calming bond markets. The Federal Reserve, which has slashed rates twice and pledged to buy more bonds, is debating whether to expand the scope of its interventions, according to Philadelphia Federal Reserve Bank President Patrick Harker.
The Bank of Japan on Thursday offered to buy 1 trillion yen ($9.2 billion) of bonds in an unscheduled operation, and followed up with offers to buy more. Hours later, the Reserve Bank of Australia said it would buy bonds across the yield curve to “address market dislocations.” It also took a leaf from the BOJ by announcing that it would target a level of around 0.25% for the three-year bond yield.
“We are seeing an unprecedented situation where the more central banks ease, the more dollars are being stacked,” said Min Gyeong-won, an economist at Shinhan Bank in Seoul. “The Fed’s bid for victory has failed, with markets not listening, worsening the dollar chaos and extending losses in Asian currencies.”
Read: Surging U.S. Dollar Is Next Big Headache for World Economy
The dollar is gaining against every major developed and emerging market currencies in Asia trading. Even the yen, normally seen as a haven, dropped 1%. Since Jan. 20 – the onset of the virus concern in Asia – the Russian ruble and the Mexican peso have tumbled more than 20%.
“No asset class is safe right now from being sold to get your hands on dollars,” said Oriano Lizza, a sales trader at CMC Markets PLC in Singapore. “Normal market mechanics have disintegrated — I don’t see any stop to this for some time yet with liquidity crunch worries in markets. It’s a case of sell everything you can to get the mighty dollar, it’s the ultimate haven.”
— With assistance by Chester Yung
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