Dollar rises before G20 and Asia tech shares up

By Kevin Plumberg, Reuters

HONG KONG — Dealers trimmed bets against the U.S. dollar on Friday ahead of a contentious G20 meeting, while a rally in technology shares supported Asian stocks, which are headed for the first weekly decline in two months. Finance ministers from advanced economies in the Group of 20 are going to Gyeongju, South Korea to ask emerging markets to allow their currencies to strengthen more and to peddle a plan on capping current account balances. However, developing economies such as China may be cool to the idea of letting their currencies fly when the Federal Reserve is discussing a new round of quantitative easing. For financial markets, that means status quo may rule and also the dominant trade since September of selling dollars to buy emerging market equities, commodities and longer maturity bonds is still alive. Citi’s currency strategists recommended adding to bets against the dollar ahead of the weekend. “We believe that timing is right to add additional short USD exposure vs. EUR,” they said in a note. “Since we believe that apparent widespread expectation for coordinated action to manage the USD’s decline will not be met, we suspect that disappointment could translate into a further broad based decline in USD.” The U.S. dollar index, which measures the dollar’s performance against a basket of six other major currencies, was up 0.2 percent, though still not far from a low for the year struck last Friday. Dealers have spent the week taking profits on their bets on emerging Asian currencies, particularly after China raised interest rates for the first time since 2007 on Tuesday, sparking fears about the impact on growth. The dollar is up 1.8 percent on the week against the Korean won and 0.9 percent against the Malaysian ringgit.

EMERGING MARKETS BONANZA The main reason for the upward pressure on emerging market currencies has been that capital flows into these high-growth regions have been torrential since September, when expectations that the Fed will basically have to print dollars to buy more assets and pull down market rates. Indeed, global emerging market equity funds absorbed a net $3.76 billion in new money while emerging market bond funds took in more than $1 billion in the week ended Oct 20, fund tracker EPFR Global said in a note. With more than two months to go until the end of the year, inflows to emerging markets have exceeded 2009. A prime example of hunger for exposure to emerging Asia was the pricing of the initial public offering of AIA, the Asian life insurance arm of American International Group Inc (AIG.N), at the top of an expected range, according to sources. “This is a cost effective way for IPO investors to ride China’s growth,” said Francis Gaskins, president of in Marina del Rey, California. In the equity markets, Japan’s Nikkei share average edged up 0.4 percent in thin trade, with prices driven higher by dealers closing out of bets against stocks. The MSCI Asia Pacific ex-Japan index was largely unchanged on the day (.MIAPJ0000PUS), supported by a 0.4 percent climb in the technology sector while consumer staples and financials were drags. The index was on track for a 1.3 percent fall for the week, the first weekly decline since the week ended Aug. 29. Commodity traders pushed up oil prices 0.6 percent to $81.00 a barrel after a batch of new U.S. data overnight painted a picture of an economy stuck in slow-growth mode, reinforcing views the Federal Reserve will ease monetary policy further next month to try to reinvigorate the recovery. Gold edged up 0.2 percent to $1,326.15 an ounce, though has dipped significantly since hitting a record high of $1,387.10 last Thursday. The stable dollar and profit taking has pulled gold down 3.1 percent so far this week for what would be the biggest weekly decline since July.