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Singapore dollar hits 7-month low pre-MAS decision; China data hurts Asia FX

by October 13, 2016 General

People use Development Bank of Singapore (DBS) automated teller machines (ATMs) at a branch office in Singapore February 15, 2014. — Reuters picPeople use Development Bank of Singapore (DBS) automated teller machines (ATMs) at a branch office in Singapore February 15, 2014. — Reuters picSINGAPORE, Oct 13 — Singapore’s dollar hit a seven-month low today, a day before a central bank monetary policy decision, while most emerging Asian currencies slid on disappointing Chinese trade data and expectations of a US interest rate hike in December.

Thailand’s baht barely moved, while the benchmark share index was down 2 per cent amid growing concerns about the health of the 88-year-old King Bhumibol Adulyadej.

The Singapore dollar lost 0.2 per cent to 1.3866 per US dollar, its weakest since March 10, and then pared much of that decline.

The Monetary Authority of Singapore (MAS) is widely expected to keep its exchange-rate based policy steady in its semi-annual review tomorrow, a Reuters poll showed.

But some investors and analysts saw a risk the MAS would announce monetary stimulus, which would pressure the Singapore dollar, as sluggish global demand keeps denting the trade-reliant economy.

“Should the MAS surprise market consensus with some form of easing, it is likely that SGD will weaken fairly quickly past the 1.40 level against the USD,” said Heng Koon How, senior FX investment strategist for Credit Suisse in Singapore.

Some analysts expected a rebound in the Singapore dollar if the central bank stays pat, saying the currency has priced in minority’s views of easing to some degree.

However, Heng of Credit Suisse said the currency is unlikely to recover much as the US dollar will stay firm on growing prospects that the Federal Reserve will raise interest rates in December.

Among US central bank policymakers, several voting members judged a hike would be warranted “relatively soon” if the world’s biggest economy continued to strengthen but doubts on inflation remained, the minutes of the Fed’s September meeting showed yesterday.

China worries

Most emerging Asian currencies extended losses after data showing China’s September exports fell much more than projected while imports unexpectedly shrank.

The Chinese yuan hit a six-year low, adding to prospects that the country may pursue a weaker currency policy in coming months. China’s central bank set its daily guidance rate for a seventh day in a row to six-year lows, partially reflecting the dollar’s strength during local holidays last week.

“Although China appears to be making up for lost time with a seven-day run of higher USD/CNY fixes, there is more work to be done,” said Sue Trinh, head of Asia FX strategy at Royal Bank of Canada in a note.

“GDP growth in Q2 and Q3 was propped up by a housing bubble and huge state stimulus, but there are signs that these support factors are fading,” she said.

Malaysia’s ringgit fell 0.5 per cent to 4.2100 against the US dollar, its weakest since February 29.

The central bank revised the September bond outflows figure to RM8.4 billion from the initial RM1.4 billion, increasing concerns that foreigners may dump the country’s bonds on expectations of Fed tightening.

With the revision, September had the largest monthly bond outflows since August last year when the country’s markets tumbled on a political crisis hitting Prime Minister Najib Razak and corruption allegations involving indebted state fund 1Malaysia Development Berhad (1MDB).

The South Korean won lost 1.1 per cent to 1,136.5 per US dollar, its weakest since July 26, leading regional losses.

Currency traders almost ignored the central bank decision to keep interest rates unchanged at 1.25 per cent for a fourth consecutive month, as that was widely expected.

The baht stayed around yesterday’s close of 35.73 per dollar. The Thai currency in the previous session touched a near nine-month trough.

Foreign investors cut Thai bond holdings by 37.4 billion baht (RM4.21 billion) in total so far this week, according to Reuters’ calculation based on data from the Thai Bond Market Association.

Offshore funds also were net sellers in the Bangkok stock market in the previous two sessions.

Thailand’s palace said yesterday the health of the king has “overall not yet stabilised”. — Reuters