Most Asian currencies fell to on Wednesday to their lowest in more than a month, as the dollar firmed after persistently high US inflation data cemented fears of more interest rate hikes by the Federal Reserve.
While the month-on-month change in the headline consumer price index was in line with expectations, the annual rate of 6.4% was above estimates.
The Malaysian ringgit fell 0.8% to hit its lowest level since Jan. 9, while the Thai baht shed 0.7% to touch its weakest point since Jan. 12. The Indian rupee eased 0.2% to hit its lowest level in more than a month.
Fed officials said on Tuesday the US central bank would need to keep gradually raising interest rates to beat inflation.
Money markets have fully priced in a 25 basis-point (bp) Fed rate hike in March and are almost certain of one more in May.
“The Fed made a mistake by slowing to 25-bp hikes too early. We suggested that this would only elongate the current tightening cycle.
It is now more a case of death by a thousand cuts, than the previous scenario of getting hit by a freight train and then having to get back up,“ Clifford Bennett, chief economist at ACY Securities, said in a note.
“The extended consistency of Fed rate hikes will wear on consumer, business and investment nerves alike. Further retrenchment of the consumer and business investment is a certainty.”
Equities in the region also fell. South Korean stocks dropped 1.6% to lead the losses, while Taiwanese shares fell 1.4%.
Resilient dollar pressures Asian FX as markets eye rate path
Singapore’s finance minister, Lawrence Wong, said on Tuesday he expected a slight deficit of 0.1% of GDP for the 2023 budget, which was aimed at helping households manage pressures of rising living costs and reviving the city-state’s pandemic-depleted coffers.
Singapore’s trade-reliant economy faces headwinds this year from slowing global growth, inflation and rising interest rates.
Meanwhile, its expenditures are increasing due to the climbing cost of healthcare, driven by an ageing population.
“Budget 2023 has struck the right balance in addressing immediate needs of households amid rising costs and helping businesses level up their productivity and overall competitiveness,” DBS analysts said in a client note.
“Tighter monetary conditions, high inflation and geopolitical tensions have exerted significant pressure on global demand, weighing down on Singapore’s growth prospects.”
Singapore’s dollar fell 0.4% and equities shed 1.2% to hit their lowest level in nearly a month.
HIGHLIGHTS:
** Indonesian 10-year benchmark yields rise marginally to 6.738%
** Indonesia posted a January trade surplus of $3.87 billion, beating forecasts, as exports expanded more than expected, data from the statistics bureau showed.