Hedging strategies to exploit ‘currency war’

As the US continues to print money and tolerate a cavernous trade gap, regional policy-makers are buying the greenback and imposing capital controls to defend export-led economies from local currency appreciation. However, the apparent futility of this campaign means currency hedgers are increasing activity and extending maturities to prepare for a prolonged cycle of dollar weakness. Joti Mangat reports

Despite attempts by Asian monetary authorities to stabilise their currencies relative to the US dollar, policy and trade gaps between the US, Europe and Asia are drawing global capital into the region with the force to overpower local interventions and regulation. Since China said it would “proceed further with reform of the renminbi exchange rate regime and increase the renminb exchange rate flexibility” on July 19, 2010, the renminbi has strengthened 3.6% against the dollar.

Despite initial