Most Asian currencies weakened on Monday as the US dollar drew strength from strong retail sales data that tempered market expectations that the Federal Reserve could cut interest rates this week. Despite a mild pull-back, the dollar index hung around two-week highs after the United States' Commerce Department on Friday said retail sales in May had increased, and revised sales for the prior month higher.
The sales numbers suggested consumer spending was picking up, and helped allay fears the world's biggest economy was slowing down sharply in the second quarter. Expectations that the Fed would cut rates at its June 18-19 meeting receded from 28.3% to 21.7% last week, according to CME Group's FedWatch tool. However, wagers on easing at the July meeting remained high.
"With US data not showing clear signs of weakness, it is difficult to justify looser monetary policy on fundamental or financial conditions arguments," DBS FX strategist Philip Wee and rates strategist Eugene Low said in a note. "The only conceivable way would be to highlight downside risks due to prolonged China-US trade tensions."
Currencies of export-reliant economies were the worst performers on the day, with the Thai baht and South Korean won weakening as much as 0.26% and 0.19% weaker, respectively. US pressure on Chinese technology majors and global weakness in memory chips have made the won the region's worst performing currency this year. The Singapore dollar firmed slightly after the island-state reported a smaller-than-expected decline in non-oil domestic exports (NODX) in May.
The 15.9% fall, however, was the biggest since March 2016 and was partly due to a sharp decline in shipments to China. The Chinese yuan was stable in thin trade morning, as the central bank kept the midpoint fixing nearly unchanged to curb downward pressure. The Indian rupee slipped to over two-week lows after data released post market hours on Friday showed the country's trade deficit widened in May to $15.36 billion.
Oil imports, the biggest item in the import bill, rose 8.23%. India meets nearly 80 percent of its fuel demand through imports. On Monday, higher crude oil prices continued pressuring the rupee. Meanwhile, worsening trade relations between India and the US further dented sentiment. India said last week it would impose higher retaliatory tariffs on 28 US products after Washington's withdrawal of key trade privileges for New Delhi.