Most emerging Asian currencies extended losses on Tuesday with the Singapore dollar slipping to one-month lows despite robust growth data, as the dollar was broadly stronger on US rate hike views and Greece's debt problems. The Singapore dollar was also undermined by weak industrial production data. China's yuan slid for a second consecutive session after the central bank set the daily midpoint guidance rate to a three-week low. South Korea's won touched a two-week trough on catch-up selling after a holiday.
The US dollar was well bid, hitting a near one-month peak against a basket of six major currencies in holiday-thin trading, as comments from Federal Reserve Chair Janet Yellen continued to resonate with greenback bulls. Financial markets in the United States and Britain were closed for holidays. Yellen on Friday made clear that the US central bank was set to raise interest rates this year. Rising US borrowing costs usually erodes the allure of higher yields in emerging Asia.
The greenback found further support from a weak euro as Greece said it needed aid urgently in order to make good on its debt obligations. "Asian units are to remain soft for now," said Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur. "Yellen-driven USD euphoria is still at play, the effect has not tapered off."
Investors were keeping an eye on US economic data such as durable goods orders due later in the day for further clues on the Fed's policy path. Yellen stressed that incoming data will be vital in deciding the pace of the tightening process. Fide Vice Chair Stanley Fischer on Monday said the process of returning to more normal levels of interest rates will take a few years. Most analysts believe emerging Asian currencies are unlikely to rebound strongly, especially as the Fed remains committed to rate increases.
"We see the USD correction to be over and USD to strengthen vs Asia," said Sean Yokota, head of Asia strategy for Scandinavian bank SEB in Singapore. Yokota said the risks of a delay in US rate hikes had been priced in emerging Asian currencies from mid-April to mid-May when regional units rose. The Singapore dollar lost as much as 0.4 percent to 1.3468 per the US dollar, its weakest since April 23.
Singapore's industrial output in April fell 8.7 percent from a year earlier, much worse than expectations. Earlier, the city-state's currency briefly turned firmer after data showed first quarter gross domestic product grew faster than initially estimated. That boosted the case for the central bank to hold off from additional monetary policy easing later this year, economists said.
The currency, however, didn't achieve much momentum due to broad strength in the greenback. "The better GDP should offset the weaker inflation print to some degree but it seems a weaker USD trend is going to be needed to push USD/SGD back down through 1.3400," said Jonathan Cavenagh, senior FX strategist with Westpac in Singapore.
Singapore's consumer prices recorded their biggest year-on-year drop in five years in April, a separate data showed on Monday. The won slid as much as 0.8 percent to 1,098.9 per dollar, its weakest since May 13, as offshore funds sold the currency. South Korea's financial markets were closed on Monday to mark Buddha's Birthday when its Asian peers fell. The won pared some of the losses as local exporters bought it for month-end settlements.
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