Firm dollar undermines emerging Asian currencies, ringgit around eight-month low
SINGAPORE, Oct 17 — Emerging Asian currencies lost ground today after comments by Federal Reserve Chair Janet Yellen boosted long-dated US bond yields, sending the dollar higher and spurring investors to cut bond holdings in the region.
Regional currencies came under further pressure as solid US retail sales and producer price data for September reinforced expectations that the Fed will raise interest rates in December.
The Chinese yuan slumped to its weakest since September 2010 on a weak central bank guidance rate, but selling was tempered by caution over possible intervention by authorities to halt further depreciation.
South Korea’s won hit a near three-month low as offshore funds dumped the currency. The Thai baht fell on concerns that the economy could slow and rising political uncertainty after the death of King Bhumibol Adulyadej.
Malaysia’s ringgit hovered a near eight-month trough, tracking lower government bond prices.
Singapore’s dollar slumped to its weakest in more than seven months, despite a smaller-than-expected drop in September exports.
Yellen said on Friday the Fed may need to run a “high-pressure” economy in order to reverse damage from the global financial crisis that depressed output.
Her remarks raised speculation that she may prefer to keep an easy monetary policy stance for a long time, pushing up yields of long-dated US bond.
“EM Asia bonds will get sold off based on the fact that Yellen’s thesis of allowing inflation will cause global bonds to reprice in the forward inflation premium,” said Stephen Innes, senior FX trader for FX broker OANDA in Singapore.
“With the solid growth differential offered in EM Asia, I think the sell-off will be short-lived. Still, we need a constructive policy direction from the Fed,” Innes said.
The US central bank needs to guide the market to December lift-off and stop with theoretical concepts, which have been confusing investors, he said. WON The won lost 1.0 per cent to 1,143.6 per dollar, its weakest since July 20.
The South Korean unit may weaken to 1,150, analysts said. It has the 38.2 per cent Fibonacci retracement at 1,149.1 of its appreciation in 2016 and the 61.8 per cent level of 1,150.8 of its strength from June to September.
Some exporters bought the unit on dips for settlements, limiting its downside. Such corporate demand is likely to gather pace as the month-end is approaching, traders in Seoul said.
The baht slid after foreign investors were net sellers in Thailand’s stocks and bonds last week.
The Thai currency recouped some early losses as foreigners bought local bonds, the Thai Bond Market Association data showed.
As Thais begin a year of mourning for their king, parties and celebrations will be toned down, particularly over the next month, temporarily crimping consumer and tourist spending in an economy that has been struggling for traction in recent years.
“Thailand will not only be entering a period of mourning, but one of dynamic changes and political uncertainty,” said Mark Mobius, executive chairman of Templeton Emerging Markets Group.
“Under such circumstances, market observers will be looking out for potential issues over political friction and royal succession, and investors should be prepared for volatility.
In the long run however, we believe the market uncertainty will ultimately be outweighed by Thailand’s strong fundamentals,” he said.
The ringgit fell 0.5 per cent to 4.2175 per dollar. That compared with 4.2210, hit on October 13, its weakest since February 29.
The Malaysian currency came under further pressure as lower crude prices underscored concerns about the country’s oil and gas revenues.
Currency traders were looking to sell the currency on rallies given slides in Malaysian bond prices.
“This global bond weakness will make yields go higher and lead to EM Asian bonds sell-off,” said a senior Malaysian bank’s currency trader in Kuala Lumpur.
“4.25 looks to be a reasonable target by end of this week,” the trader added. — Reuters