Emerging Asian currencies remained on the back foot against a resilient dollar on Friday as hawkish headlines from the US Federal Reserve dampened risk sentiment, with China’s yuan nearing a 14-year low.
Globally, risk sentiment remained subdued after a dip in US jobless claims and comments from a Fed official reinforced an aggressive stance in hiking interest rates that many investors fear could plunge the world’s largest economy into recession.
The US dollar index edged higher on the back of surging Treasury yields, with the yield on the 10-year note at a 14-year high.
“A relentless rise in US 10-year yields, yuan depreciation pressures, lack of positive China policy shifts post-Party Congress, and signs of a slowdown in external demand had contributed to sour sentiment in Asian credit markets,” said analysts at DBS Group.
Among Asian emerging currencies, the yuan weakened the most on the day, falling 0.4%. It was set to depreciate 0.7% so far over the week.
China, the region’s biggest trading partner, has seen a steady decline in its currency for most of the year, driven by the surging dollar and stringent COVID lockdowns which are weighing heavily on the economy and raising risks of capital outflows.
Malaysia’s ringgit was down as much as 0.2% and trading at near a 25-year-low, where it has been since mid-September, weighed by a mix of global growth headwinds, rising Treasury yields, and political uncertainty at home.
“A potent mix of buoyant US Treasury yields, elevated global growth concerns, as well as domestic election uncertainty continue to weigh on the ringgit,” analysts at Maybank said.
Asian currencies firm, equities advance as risk sentiment improves
“On global growth risks, lack of clearer signs of easing in COVID-zero stance from Chinese authorities could spillover negatively to ringgit given tight Malaysia-China linkages.”
The Southeast Asian country reported annual inflation of 4.5% in September, slightly less than forecast and below the 4.7% seen in August. That could have a bearing on the upcoming central bank monetary policy meeting in the first week of November.
Meanwhile, a Reuters poll showed bearish bets on Asian currencies continued to hold steady in the shadow of a soaring greenback, with short positions in the Chinese yuan, which have been at multi-year highs in recent times, marginally rising in the last two weeks.
Elsewhere in Asia, the South Korean won and the Thai baht depreciated about 0.3%, respectively, while Vietnam’s dong hit a fresh record low.
The Philippine peso, which has been the worst performing currency in the region, remained largely flat, while the Indonesian rupiah and Singapore dollar edged marginally lower at 0.1%.
Equities across the region were mixed, with Singapore’s benchmark index losing 0.8% on one end and Indonesian shares adding 0.6%.
Highlights:
** As intervention threat grows, Japan says FX speculators dealt with ‘strictly’
** Vietnam dong extends loss against dollar, down 0.16% to 24,570
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