SINGAPORE: Asias massive foreign exchange reserve holdings have levelled off over the last five months, with China the exception, and analysts say a stronger US dollar has lessened the need for intervention on currencies.
Reserves held by Asian central banks reached US$2.215 trillion at the end of August, the latest central bank figures showed. China is the only country not to have released reserve holdings for August. Asian reserves excluding China rose by US$14bil, just 0.6%, in August.
This was the largest monthly rise since March, when reserves rose by US$59.3bil excluding China, and analysts said it largely reflected valuation effects and US Treasury coupon payments last month.
Japans reserves, for example, rose by US$8.8bil even though it did not intervene to hold down the yen during August.
Asian reserves excluding China have risen by just US$15.6bil in the five months to the end of August, after rising by
US$210.7bil in the first quarter 2004.
In contrast, Chinas reserves rose by US$43.2bil in the four months that ended in July, a pace fairly consistent with the rise of US$36.5bil in the first quarter.
They are the only big reserve accumulator through the region, Deutsche Bank currency strategist James Malcolm said. Its just a reflection of real flows. People made a big deal of the current account being in deficit for one or two months. Its obviously not a major factor.
The floating Asian currencies were weaker against the dollar at the end of August than they were at end-March. Growth has slowed in the region and investors are looking elsewhere after being large buyers of Asian equities in 2003 and into 2004.
In addition, the dollar has been supported by expectations of the start of an interest rate tightening cycle in the United States.
The US Federal Reserve raised rates on June 30 and Aug 10 and is widely expected to raise rates again next week.
The point was, really, through the end of last year and the beginning of this year, you had three very dominant forces in the market, Robert Rennie, Westpac Banks chief currency strategist, said of the slowdown in Asian reserves growth. Reuters