Dollar Weakens Before G-20 on Speculation China Allowing Faster Yuan Gains

The dollar weakened against most of its major counterparts after China’s yuan rose to the strongest level since 1993, fueling speculation the Asian nation is allowing faster gains as Group of 20 leaders meet in Seoul.

The greenback dropped for a third day versus the yuan on prospects developing nations will agree to scale back efforts to hold down the value of their currencies. The New Zealand dollar rose for a second day as data showing China’s economy is improving boosted demand for higher-yielding assets. Taiwan’s dollar jumped the most in a decade on speculation overseas investors will add to holdings of the island’s assets.

“The yuan’s rate is being fixed higher these past couple of days, ahead of the G-20 meeting,” said Satoshi Okagawa, head of the foreign-exchange and money trading group in Singapore at Sumitomo Mitsui Banking Corp., a unit of Japan’s third-largest banking group. “China may be trying to say to the G-20 that they’re doing their part by letting their currency gain. That is causing the dollar to weaken.”

The dollar traded at $1.3786 per euro as of 7:55 a.m. in London from $1.3783 in New York yesterday, when it climbed to $1.3671, the strongest since Oct. 5. The U.S. currency slipped 0.2 percent to 6.6235 yuan, and traded at 82.21 yen from 82.28 yen. The euro was at 113.35 yen from 113.41 yen.

G-20 Accord

G-20 nations including China are trying to forge an agreement on currencies that goes beyond an accord reached by finance ministers and central bank governors last month, the group’s committee spokesman Kim Yoon Kyung said in Seoul today.

Finance ministers agreed in October to “move towards more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from the competitive devaluation of currencies.” G-20 leaders are gathering for a two-day summit starting today.

Policy makers from Asia to Latin America have said it’s the U.S. Federal Reserve’s liquidity injections, known as quantitative easing or QE that are warping global capital flows and driving down the dollar. The central bank of South Korea, the G-20’s host nation this year, today joined in that assessment of the Fed’s Nov. 3 decision to buy $600 billion of Treasuries, saying it will weaken the dollar.

“One of the reasons why the G-20 continues to make some progress currently is directly linked to the Fed’s QE decision,” analysts including London-based economist Thomas Stolper at Goldman Sachs Group Inc., wrote in a note yesterday. “The world’s central banks hold about $2.8 trillion of U.S. Treasury securities, and if the Fed starts to monetize debt, the pressure rises to find better globally coordinated policies. No doubt, broad dollar depreciation will be part of the mix.”

Consumer Prices

China’s consumer prices rose 4.4 percent from a year earlier, the statistics bureau said in Beijing. That was more than the 4 percent forecast in a Bloomberg survey. Industrial production advanced 13.1 percent and retail sales grew 18.6 percent in October from a year ago, the government also said.

China’s foreign and local debt rating was raised by Moody’s Investors Service today to Aa3, the fourth-highest ranking. Moody’s cited the nation’s financial strength and ability to contain losses from a credit boom.

The New Zealand dollar strengthened against all its 16 major counterparts as Asian stocks advanced for the first time in three days. China is New Zealand’s second-biggest export market and Australia’s largest trading partner.

The data “show solid improvement in China’s fundamentals,” said Mitul Kotecha, head of global currency strategy at Credit Agricole CIB in Hong Kong. “It helps risk appetite to some extent, which perhaps helps” the New Zealand and Australian currencies.

New Zealand’s dollar gained 0.5 percent to 78.65 U.S. cents, and rose 0.4 percent to 64.65 yen. The MSCI Asia Pacific Index of shares increased 0.4 percent.

Taiwan’s Dollar

Taiwan’s currency climbed for a third day after the United Daily News reported that billionaire George Soros’ hedge funds are targeting the Taiwan dollar for trading. Global funds bought $409 million of the island’s shares this week, boosting this year’s net purchases to $7.1 billion, exchange data show.

“It’s the better economic growth that attracts investors into Taiwan,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan. “The central bank would know if Soros is buying the Taiwan dollar, and it will watch the currency even more closely then.”

The Taiwan dollar strengthened as much as 1.9 percent, the most since January 2000, to NT$30.039 versus the greenback. It was 0.2 percent stronger at NT$30.532.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Monami Yui in Tokyo at Myui1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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