US DOLLAR DOWN–ASIAN CURRENCIES UP
HONG KONG – Stock markets in Asia closed mixed on Wednesday after the US Federal Reserve said overnight that it was ready to take additional steps to stimulate economic growth.
There were concerns that this will lead to further weakness in the US dollar.
On the other hand, the prospect of further quantitative easing is fuelling expectations that investors will have access to even more cheaply-borrowed money to buy riskier assets like equities.
The US Federal Reserve’s latest statement was widely seen by the financial markets as a sign that Federal Reserve Chairman Ben Bernanke is building consensus towards restarting bond purchases to counter slow growth and a low inflation rate.
Analysts said one of the big beneficiaries will be Asian treasuries as the US dollar is expected to weaken further.
“If US dollar keeps declining and (dealers) shift their assets to other currencies like the yen – because now the market thinks that the Japanese yen is one of the safest currency in the world – and the other one is the renminbi, we will see these currencies continue to rise.”
Already, the weakening dollar has hit 15-year lows against the yen in recent weeks, forcing Japan to sell down its currency.
Following the Fed comment, the Bank of Japan has vowed to take timely and appropriate action if downside risks appear.
In Hong Kong, the central bank has kept its base rate unchanged at 0.5 per cent. The territory’s currency peg to the US dollar means that any interest rate adjustments are in tandem with the US.
Local lenders like HSBC have also responded by leaving their best lending rates unchanged at 5 per cent, a level that has not changed for nearly two years.
Mr So said: “We are living in a bubble world – because the interest rate has already been a low base for a very long period, and even when the European debt crisis has arisen, in the past several months, we haven’t seen the equity market and the property market price drop by a lot.”
