Asian currencies weakened on Monday as the greenback firmed after investors quashed hopes of a pivot on policy tightening by the US Federal Reserve this week, while lacklustre factory activity data from China also weighed on the region.
The Malaysian ringgit and the Indonesian rupiah fell 0.2% each. The Singapore dollar and the Philippine peso also inched lower.
The dollar firmed after data showed inflation was still running hot, therefore, cooling bets that the US central bank could flag a less-aggressive rate hike this week.
Policymakers are expected to hike key interest rate by 75 basis points.
“However, the markets are hopeful that a 50 bp hike could come in December,” said Yeap Jun Rong, markets strategist at IG.
“The tone from Fed Chair Jerome Powell will be important, with markets likely to scrutinise for any increased concerns on economic conditions or further emphasis on the central bank’s data-dependent stance, as compared with the current head-on resolve to tame inflation,” he added.
Currencies in the region came under pressure as the Chinese yuan fell 0.2% after data showed that factory activity in the world’s second-largest economy unexpectedly fell in October, dented by softening global demand and strict COVID-19 restrictions.
“China’s Purchasing Managers Index (PMI) came in weaker than expected, but this should be no surprise given those broad-based COVID-19 restrictions that remained in place during the National Party Congress,” said Stephen Innes, Managing Partner at SPI Asset Management.
Meanwhile, China’s central bank said it will step up credit support for the real economy while keeping the yuan steady.
The central bank’s surprise interest rate cut in August was the main contributor to the recent depreciation in the yuan.
Asian currencies dip as inflation, recession woes loom
Stocks in the region caught the tailwind from a bounce on Wall Street as robust consumer spending and positive earnings outlook fuelled risk appetite.
Equities in Singapore rose as much as 2.2% and were set for their best day in nearly nine months, while stocks in Malaysia climbed 1.2% to their highest level in more than a month.
Stocks in Indonesia and Thailand also traded in black.
Highlights:
** Indonesian 10-year benchmark yields fall to 7.543% to hit their lowest since Oct. 21
** Philippine central bank sees October inflation in 7.1%-7.9% range
** Indonesia central bank sees headline Oct inflation easing to 5.8% Y/Y
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