Emerging Asian currencies lost ground on Thursday, with China's yuan falling to levels not seen since early March, after minutes of the Federal Reserve's latest policy meeting put the possibility of a June interest rate hike firmly on the table. The dollar rose after the Fed minutes released on Wednesday showed that most US central bank policymakers were leaning toward a rate increase next month if economic data continued to improve.
The yuan slid after the central bank set its daily guidance rate at the softest in 3-1/2 months. Indonesia's rupiah hit a three-month low as investors sold government bonds. The South Korean won and the Malaysian ringgit both slumped to more than two month lows on selling by foreign investors.
The Philippine peso fell to its softest level in more than a week, despite data showing the economy expanded at the fastest annual pace in nearly three years in the first quarter. After the Fed minutes, CME Fed fund futures indicated that the probability of a June rate increase rose to 34 percent from 19 percent earlier in the day. "The recent US economic data have been constructive and supports the case for a rate hike. The minutes reinforced our earlier call for the Fed to hike rates twice this year - once in June and another one in December," said Christopher Wong, a senior FX strategist for Maybank in Singapore.
"We are seeing a repricing and readjustment of positions in USD/Asia ex-Japan FX. We should see UST yields higher and USD/Asia ex-Japan should also drift higher." Short-dated US Treasury yields on Wednesday rose to their highest in nearly two months. Rising US Treasury yields usually reduce the appeal of higher returns from Asia and could spur capital outflows from the region. Caution grew over possible intervention by Asian foreign exchange authorities to stem their currency losses, as such depreciation could accelerate capital flight.
Traders and analysts said the daily fixing for the yuan was not as weak as some had expected, indicating the People's Bank of China is keen to stabilise the currency market. "The central bank will control market expectations and will not allow extreme movement in the yuan," said Qi Gao, an emerging Asian currency strategist for Scotiabank in Hong Kong. The rupiah lost 1.0 percent to 13,520 per dollar, its weakest since February 19, tracking weakness in non-deliverable forwards.
The official Jakarta Interbank Spot Dollar Rate, which the central bank introduced in 2013 to manage exchange rate fluctuations, was fixed at 13,467, its weakest since then. Some state-run banks bought the rupiah around its lows, increasing caution over possible intervention by the central bank to stem its depreciation, traders said. The won fell as much as 0.8 percent to 1,192.4 per dollar, its weakest since March 16. The South Korean currency recovered some of earlier losses as investors grew wary of possible intervention. Offshore funds and local exporters bought it on dips around the session low. The authorities have been suspected of stepping into the market to curb the won's depreciation recently, traders said.
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