Currencies in emerging Asia slid further yesterday after traders took mixed messages on the US Federal Reserve’s stimulus program, even as upbeat Chinese manufacturing data provided support.
The Indian rupee sank to a new record low of 65.27 to the US dollar before slightly recovering to 65.15 in afternoon Asian trade, still well down on the 64.72 late on Wednesday.
The Indonesian rupiah traded at 10,958 to the US dollar against 10,945 a day earlier, while the Thai baht was at 32.12, compared with 31.77.
Minutes from the Fed’s policy meeting last month showed board members had differing opinions on when to wind down its US$85 billion a month bond-buying, known as quantitative easing (QE).
Some back a “taper” as soon as next month, while others said the bank needed to see more evidence the US economy was strong enough.
Even so, together the Fed’s policymakers agreed at the meeting to reiterate their commitment to reeling in the stimulus in the coming months, a message that has driven up interest rates and exacerbated capital flight from countries like India, Turkey and Indonesia already facing sharp economic slowdowns.
In Tokyo yesterday, the US dollar rose to ￥98.21 from ￥97.67 in New York on Wednesday, while the euro bought US$1.3340, from US$1.3359. The euro fetched ￥131.02, against ￥130.46.
“I personally didn’t think the minutes gave any clear indication of whether tapering will begin next month or not, but the market reacted anyway with falls in shares, rise in yields and dollar-buying,” Mizuho Securities currency strategist Kengo Suzuki said.
The US dollar was also higher against other Asia-Pacific currencies. It rose to NT$29.98 from NT$29.90, to 1,122.7 South Korean won from 1,117.90 won and to S$1.2840 from S$1.2767 in Sinagapore. It firmed to 44.14 Philippine pesos from 43.95 pesos, while the Australian dollar fell to US$0.9001 from US$0.9033.
After the Federal Open Market Committee’s (FOMC) meeting in June, US Federal Reserve Chairman Ben Bernanke announced that they expected to begin cutting the bond purchases sometime late this year and wind up the program in total by the middle of next year.
However, the minutes to the meeting revealed an ongoing tentativeness about that commitment, rooted in a divergence of opinions on how strong economic growth is.
The 12 FOMC voting members and five alternates were “generally” confident in forecasts that the economy would pick up speed later this year and accelerate next year.
However, “a number” were worried that government spending cuts could hold back growth, and that higher interest rates — from market expectations that tighter money conditions are indeed nigh — will dampen the rebound in the housing industry.
Moreover, some questioned what the recent fall in the unemployment rate said about the strength of the jobs market.
“The employment-to-population ratio, together with a high incidence of workers being employed part time for economic reasons, were generally seen as indicating that overall labor market conditions remained weak,” the minutes said.
Analysts said there was no clear signal as to whether the FOMC was expecting to begin cutting the bond buying as soon as its meeting on Sept. 17 and Sept. 18, or wait until October or its final meeting of the year, in December.
However, some interpreted a bias toward a move later in the year.
“The majority of financial market participants is currently expecting that the Federal Reserve will announce the tapering of its asset purchase program at the upcoming meeting, in mid-September,” Harm Bandholz of UniCredit said.
“At the same time, the Fed might still be a bit farther away from changing the forward guidance than I thought so far,” he added.
“The committee turned a bit more bearish on the state of the economic recovery,” economist Paul Edelstein at IHS Global Insight said. “As such, we don’t expect tapering at the September meeting.”