Asian central banks intervene as U.S. dollar sags

NEW YORK (Reuters) - Asian central banks bought U.S. dollars early in the global session on Thursday to weaken their own currencies, traders said, as the slumping greenback threatens smaller export-driven economies.

Asian central banks said to be intervening in currency markets overnight by buying dollars included South Korea, Hong Kong, Taiwan, Thailand, the Philippines and possibly, Indonesia, according to analysts.

Emerging market Asian nations, already struggling with the tepid U.S. recovery and weak demand for their exports from the world’s largest economy, have been doubly hurt because their currencies appreciated against the dollar, prompting repeated intervention.

“Stronger currency hurts exports and growth, and so emerging market policymakers are doing their best to prevent excessive gains” in their currencies, said Win Thin, senior currency strategist at Brown Brothers Harriman & Co.

“If (their currencies have) too much strength and the U.S. recovery falters, it’s bad for emerging market growth.”

There was also an indication that Russia bought as much as $4 billion this week, including $1.4 billion overnight, several market participants said.

Russia was reportedly one of “at least six central banks buying dollars,” said Michael Woolfolk, senior currency strategist at BNY Mellon.

Despite the apparent buying, the ICE Futures U.S. dollar index, a measure of the greenback against six other major currencies, fell 0.9 percent to 75.798, a 14-month low. It retraced some of its losses during the morning before falling again.

Reaction in individual pairs was mixed. At current prices, the dollar is down 0.6 percent against the Russian rouble, 0.2 percent against the Thai baht and 0.3 percent against the Korean won. The dollar was up 0.1 percent against the Taiwanese dollar and Indonesian rupiah but remained flat against the Phillipine peso and Hong Kong dollar.

Chatter about Russia and other central banks buying dollars to depreciate their own currencies is nothing new. Asian central banks have been rumored to be buying dollars for several months. The interventions or central bank concerns were reported by Reuters overnight.

“Central banks are keeping policies loose to ensure themselves against the risk of a double-dip recession, and each one of them would prefer its currency to weaken, as insurance against a local double-dip,” said Marco Annunziata, chief economist at UniCredit Group in London.

The difference is that while some banks such as Russia had been actively converting those dollars to euros to build up alternative reserves, for now, most banks seem comfortable holding greenbacks.

Analysts say the moves are also protection against a double dip global recession, which would only compound the problems for countries loath to see their currencies appreciate further.

Though some confirmation may come next week with the release of the Treasury International Capital flows report for August, most investors appeared to accept that central bank dollar buying is rational, if only as a hedge against more expensive safe haven flows at a later date.

The risk of course, is that the dollar loses value, making purchases now a bad bet.

“If the U.S. returns to recession after the third or fourth quarters, the dollar will become even cheaper,” said Joseph Trevisani, senior market analyst at New Jersey-based FX Solutions from Kuwait City. “A second recession means prolonged low American interest rates, a weak U.S. economy, perhaps further Federal Reserve market support -- all of which are detrimental to the dollar.”

Reporting by Nick Olivari; Editing by Diane Craft