Most emerging Asian currencies slid on Monday as strong US jobs data boosted expectations for a Federal Reserve interest rate hike in December, undermining the appeal of the region's higher yields. India's rupee slumped to its weakest in more than six weeks after Prime Minister Narendra Modi's heavy defeat in Bihar's state elections raised concerns the government would struggle to pass policy reforms.
The Philippine peso hit a six-year low. The South Korean won, the Malaysian ringgit and the Thai baht touched one-month troughs. Indonesia's rupiah fell to its weakest in more than two weeks. US employers added 271,000 jobs in October, data showed on Friday, far beating a forecast of 180,000 in a Reuters poll. The US unemployment rate fell to 5.0 percent, the lowest since April 2008.
The data lifted US Treasury yields with the 2-year yield hitting a 5-1/2-year high. The US dollar also rose to a near seven-month peak against a basket of major currencies. "This move higher in front-end US Treasury yield is clear evidence that the market is now pricing in more meaningful risk of a Fed hike in December," said Heng Koon How, senior currency strategist for Credit Suisse private banking and wealth management in Singapore.
After the jobs data, 15 of 17 primary dealers, the banks that deal with the Fed directly, said they expect a rate hike in December, a Reuters poll showed. Interest rate futures were pricing in a 70 percent probability of such tightening. Higher US borrowing costs are expected to cut global liquidity and diminish the attractiveness of higher yields in Asia. "Asian FX will definitely be on the defensive. Existing domestic pressure remains in the form of growth slowdowns, export contraction and wide current account deficits," Heng said.
China's exports and imports in October fell more than expected, adding to concerns over a sustained slowdown in the world's second-largest economy. The rupee fell as much as 1.1 percent to 66.500 per dollar, its weakest since September 16. Modi suffered a heavy defeat on Sunday in an election in Bihar, India's third most-populous state, signalling the waning power of a leader who until recently had an unrivalled reputation as a vote winner.
India's stocks and bond prices also fell. "Investors may fear not only a shift in the BJP's reform agenda ahead of five more state elections next year, but also tougher political negotiations with a re-energised opposition," Citi wrote in a note, referring to Modi's Bharatiya Janata Party. The rupee pared some of its earlier losses as state-run banks were spotted selling dollars around 66.490, likely on behalf of the central bank, two traders told Reuters.
The peso slid 0.6 percent to 47.200 per dollar, its weakest since November 2009. The Philippine currency slid in most non-deliverable forwards (NDFs) with the one-month NDFs hitting a 5-1/2-year low. Offshore funds including real money accounts sold the NDFs to hedge currency risks. The won lost as much as 1.4 percent to 1,157.6 per dollar, its weakest since October 8.
The South Korean currency pared some of earlier losses as local exporters bought it on dips for settlements. Still, the won may soften to 1,165 as it weakened past a chart support of 1,154.3, the 38.2 percent Fibonacci retracement of its appreciation from September to October, analysts and traders said. The currency has the 50 percent retracement of 1,164.7 and a 55-day moving average at 1,165.1, they added. "It is a key for dollar/won to find a firm base above 1,150. If the exchange rate succeeds to stay there, it will see more upside risks towards 1,160," said a South Korean bank trader in Seoul.
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