NEW YORK - Asian governments spent about US$50 billion (S$71 billion) in foreign exchange reserves last month - the highest level since March 2020 - to defend their currencies from a relentless advance in the United States dollar.
Exante Data, a firm that specialises in tracking global capital flows, estimates that emerging Asian nations excluding China spent nearly US$30 billion with dollar sales in the spot market in September alone. The number rises to US$50 billion when Japan is included.
Dollar sales in the region including Japan over the first nine months of the year have reached approximately US$89 billion, marking the most active period for foreign exchange expenditures since at least 2008, according to Exante. The firm bases its estimates on data from central banks and other government authorities and adjusts them for changes in foreign exchange rates.
The increase comes as the Bloomberg Dollar Spot Index, which measures the greenback against a basket of other major currencies, is trading at an all-time high in the aftermath of the most aggressive hiking of interest rates since the 1980s. The surge in the greenback has reduced the value of the stockpile of other currencies in central banks' portfolios.
While recent US dollar sales by countries including South Korea, India, Taiwan and Japan have been largely well publicised, activity by other countries was documented mostly through central bank reporting.
In addition to Japan's US$20 billion in sales in September, South Korea sold approximately US$17 billion, according to Exante, based on data currently available from the nation's central bank. Hong Kong, the Philippines, Taiwan and Thailand were also net sellers of dollars for the month of September, according to the firm.
"Their currencies are under pressure in the face of higher interest rates," said Mr Alex Etra, a senior strategist at Exante.
There is an "unusual degree of uncertainty" of how high US interest rates might go, he added.
The pace of intervention may not be over, with the yen's drop to its lowest level in more than 30 years on Thursday bringing back chatters of possible action from the Japanese authorities after the pickup in activity last month.
To be sure, Asian governments have frequently resorted to intervention in foreign exchange markets in the past to slow down or control volatility, as well as weaken currencies. But last month's dollar selling tops volumes seen in the early days of the pandemic in March 2020.
The drawdown in reserves could stem in part from a broader reallocation of assets as well as declining valuations, Mr Etra said. But to a large degree, it comes down to central banks needing to sell reserves in order to have cash on hand.
Foreign exchange reserves are falling across the world. The global reserves stockpile declined by more than US$1 trillion, or 8.9 per cent, this year to less than US$12 trillion, the biggest drop since Bloomberg started to compile the data in 2003. BLOOMBERG
