A wave of dollar selling in Asia is an ominous sign for the greenback as the world's export powerhouse starts to question a decades-long trend of investing its big trade surpluses in U.S. assets.
Ripples from Friday and Monday's record rally in the Taiwan dollar are now spreading outward, driving surges for currencies in Singapore , South Korea , Malaysia , China and Hong Kong .
The moves sound a warning for the dollar because they suggest money is moving in to Asia at scale and that a key pillar of dollar support is wobbling.
While Tuesday brought a measure of stability, following a stunning 10% two-day leap for Taiwan's currency, Hong Kong's dollar was testing the strong end of its peg and the Singapore dollar has soared close to its highest in more than a decade.
"To me, it has a very sort of Asian-crisis-in-reverse feel to it," said Louis-Vincent Gave, founding partner of Gavekal Research, in a podcast, due to the speed of the currency moves.
In 1997 and 1998, capital flight sank currencies from Thailand to Indonesia and South Korea and left the region determined to accumulate dollars in the aftermath.
"Since the Asian crisis, Asian savings have not only been massive, but they've had this tendency to be redeployed into U.S. Treasuries. And now, all of a sudden, that trade no longer looks like the one-way slam dunk that it had been for so long," said Gavekal's Gave.
Dealers said volumes were heavy in other Asian markets.
At its heart, the break has been triggered by U.S. President Donald Trump's aggressive tariffs, analysts said, rattling investors' confidence in the dollar and upending the flow of trade dollars into U.S. assets in two places.
First, exporters especially in China can expect fewer receipts as tariffs cut access to U.S. customers. Second, fear of a U.S. downturn casts a shadow over U.S. asset returns.
"Trump's policies have weakened the market's confidence in the performance of U.S. dollar assets," said Gary Ng, senior economist at Natixis.
Some are speculating on what markets have termed a "Mar-a-Lago agreement," he said, or a deal - named after Trump's gilded Florida resort - to weaken the dollar.
Taiwan's Office of Trade Negotiations denied tariff talks in Washington last week had involved the topic of foreign exchange.
TALK BECOMES REALITY
Asia's biggest piles of dollars sit in China, Taiwan, South Korea and Singapore, which combined number in the trillions.
In China alone, foreign currency deposits at banks - mostly dollars and largely held by exporters - were $959.8 billion at the end March, the highest in nearly three years.
On top of that are layered investments funded in these currencies, which have low borrowing costs by global standards and investments in U.S. stocks and bonds by pension and insurance funds, which have tended to keep foreign exchange hedges small due to the costs involved.
There are signs the dollar view is shifting from all corners. Goldman Sachs said in a note on Tuesday that investor clients had recently flipped from short yuan positions, to long positions, or in other words, they are shorting the U.S. dollar expecting further weakness.
Robin Xing, Morgan Stanley's chief China economist, said Trump's April 2 "Liberation Day" tariff announcement was the wake-up call that forced investors to at least hedge, if they weren't selling, U.S. assets.
"Over the mid- and long-term, I think people start thinking: how to diversify assets in the future, rather than be stuck in the outdated mentality of dollar supremacy."
A popular trade that involved buying cheap U.S. dollars in the Hong Kong dollar forwards market , known in markets as the gift that never stopped giving, also went into reverse since it rested on the Hong Kong dollar staying still.
"Macro funds and leveraged players have hundreds of billions of dollars in the HKD forwards free-money trade, and now they are unwinding," said Mukesh Dave, chief investment officer at Aravali Asset Management, a global arbitrage fund based in Singapore.
Hong Kong's de-facto central bank said on Monday it has been reducing duration in its U.S. Treasury holdings and diversifying currency exposure into non-U.S. assets.
Rallies in Asia's bond markets suggests exporters' and long-only money may be coming home, too.
"Repatriation talk is becoming reality," said Parisha Saimbi, Asia-Pacific rates and FX strategist at BNP Paribas in Singapore, as investors and exporters are either unwinding or rushing to hedge.
"Whichever format it comes in, it suggests that the support for the dollar is shifting and it's turning lower ... I think it speaks to this idea that there is a de-dollarization in action."
UBS estimates that if Taiwan's insurance companies increased hedging ratios to their 2017-2021 averages, it could be worth some $70 billion in U.S. dollar selling.
To be sure, Taiwan's central bank has vowed to stabilise the local currency and even the island's president took the unusual step of recording a video message to insist the exchange rate was not part of U.S. trade talks.
Still, the market seems to be voting with its wallet.
"USD/TWD is a canary in the coal mine," said Brent Donnelly, veteran trader and president at analytics firm Spectra Markets.
"Asian demand for U.S. dollars and Asian central bank desire to support the U.S. dollar is waning."
