Opinion Tariff Tracker, May 5: A US-China thaw, the declining dollar, and a Saudi oil gambit

‘Sell America’ wave

As the US dollar continues to decline, several Asian banks resorted to offloading their dollar reserves amid the appreciation of domestic currencies. The dollar has been falling sharply against the Taiwan dollar, Singapore dollar, South Korean won, and Japanese yen. The dollar index has been down almost 8% since the beginning of the year.

A stronger domestic currency is good news to attract foreign money inflows and make imports cheaper, but it hurts domestic exporters by making their products less competitive (more expensive than foreign rivals).

The Hong Kong dollar has been pegged to the US dollar since 1983, in what is called a linked exchange rate system. This exchange rate is strictly maintained by the city-state’s central banking authority, the Hong Kong Monetary Authority (HKMA), within the range of 7.75-7.85 HKD.

When the HKD appreciates ($1 < 7.75 HKD), the HKMA buys reserves of the USD to restore the targeted rate, by supplying their currency. This is what happened on Friday, when the HKMA bought $6 billion to restore the balance, according to a Bloomberg report. This was its first such intervention in five years.

On Monday, Bloomberg reported that the Taiwanese dollar had appreciated by 4.5%, reaching a rate of $1 = 29.672 TWD, its strongest value since May 2023 and highest since 1988.

Taiwan is currently negotiating with the US on a tariff deal, crucial for its export-driven economy, and concluded first-round talks on Saturday. It has witnessed massive foreign inflows, as global funds bought $1.2 billion worth of Taiwanese shares on Friday.

Saudi’s oil supply boost

The Saudi Arabia-led Organization of the Petroleum Exporting Countries (OPEC+) on Saturday announced it would increase oil supply by 411,000 barrels per day (bpd) in June. This follows a similar announcement last month applicable to oil production from May. Effectively, the oil cartel would be supplying 1 million bpd between April and June.

This has stoked fears of a glut in oil supply amid concerns of economic stress thanks to Trump’s tariffs. The benchmark Brent crude fell by a fifth of its value in April, the largest fall in a single month since 2021.

The move is seen as a step by Saudi Arabia to check OPEC+ members Iraq and  Kazakhstan for exceeding their agreed-upon production ceilings in recent months. Saudi Arabia, which cut its production by 2 million bpd over the last three years, is looking to expand its market share.

It also helps Saudi Arabia’s case with the US ahead of President Trump’s expected visit to the kingdom to discuss an arms package and a nuclear agreement. He has repeatedly asked OPEC+ to increase its oil production in a bid to tackle inflationary pressures at home.

For the US, this development presents a mixed bag.

The US consumer (and non-oil manufacturer) stands to gain, as lower oil prices get transferred through the production cycle and translate into lower prices of products. However, as the world’s largest oil producer, the US will be adversely affected: data from the US Energy Information Administration showed that the US produced 13,159 bpd this February.