Asian currencies completed their biggest monthly drop since November last year, led by the South Korean won, on signs that the US Federal Reserve is moving closer to raising interest rates.
US Fed Chair Janet Yellen on May 22 said that she expects to increase benchmark borrowing costs this year if the US economy meets her forecasts. In northeast Asia, the Japanese yen’s slide to a 12-year low is eroding the export competitiveness of Taiwan and South Korea and risks exacerbating a currency war.
The weakness in Asian currencies “has been more of a function of dollar strength,” Royal Bank of Canada Hong Kong-based senior currency strategist Sue Trinh said. “The dollar strength will continue to weigh on Asian currencies as the Fed prepares to raise interest rates.”
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, fell 0.9 percent this month as of 5:12pm yesterday in Hong Kong. The won weakened 3.2 percent, the biggest drop in six months; Malaysia’s ringgit declined 2.8 percent; and Thailand’s baht depreciated 2 percent, data compiled by Bloomberg showed.
The yen has tumbled 18 percent against the greenback in the past 12 months as Japan pressed ahead with record monetary stimulus, while the won lost 7.9 percent and the New Taiwan dollar fell 2.2 percent. The Korea International Trade Association called for policymakers in Seoul to steady the exchange rate on Thursday, as Taiwan’s central bank stepped up intervention to weaken its currency.
The NT dollar and the won “are lagging the yen’s move, and over the longer term they will catch up,” Standard Chartered PLC Hong Kong-based foreign exchange strategist Eddie Cheung said. “Northeast Asian exports have been weak, so that should argue that there’s probably a bit more room for downside for these two currencies.”
The ringgit fell this month as the price of Brent crude oil dropped 5.4 percent following a 21 percent jump last month. Cheaper oil weighs on government finances in Malaysia, a net exporter of the commodity.
Elsewhere in Asia, Indonesia’s rupiah declined 2 percent this month against the greenback, India’s rupee lost 0.6, the NT dollar retreated 0.4 percent and the Philippine peso slipped 0.1 percent. China’s yuan was little changed.
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