Asian currencies fell yesterday, highlighting the pressure wrought by a stronger US dollar as the US Federal Reserve races ahead with interest rate hikes.
The New Taiwan dollar declined against the US dollar, dropping NT$0.075 to close at NT$29.790 — an almost one-month low.
The Indian rupee declined to a record low of 78.29 rupees per US dollar, while the Philippine peso dropped as much as 0.7 percent to 54.635 pesos, its weakest level since November 2005.
The South Korean won slid to a 13-year low of 1,297.85 won versus the greenback.
In Hong Kong, the monetary authority has bought HK$78.1 billion (US$10 billion) of the local dollar so far this month, including its HK$20.8 billion purchase on Tuesday. The currency still continues to linger near the weak end of its HK$7.75 to HK$7.85 trading band against the greenback.
Regional currencies have been caught out by the Fed’s hawkish bias, which stands in contrast to the more patient policy stance adopted by Asian central banks. Idiosyncratic factors such as a widening current-account deficit for the Philippines and geopolitical risks for South Korea are adding to the pressure.
“Central bank rate signals are becoming a bigger driver of Asian currencies,” said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore. “Downward pressure on currencies where central banks are behind the curve in managing inflation will increase, particularly as the Fed keeps hiking aggressively.”
Fed Chairman Jerome Powell was scheduled to deliver his semi-annual testimony on monetary policy to the US Congress yesterday and today.
He has said that another 75 or 50 basis-point hike was likely at the next review next month.
It is not just developing Asian currencies that are feeling the heat. The Japanese yen yesterday tumbled to a fresh 24-year low of ￥136.71 per US dollar, as the Bank of Japan’s ultra-loose policy contrasts with the Fed’s hawkish bias.
“Ongoing global growth concerns, inflation worries and fears of tighter financial conditions continue to keep a leash on risk appetite,” Malayan Banking Bhd FX strategist Christopher Wong (黃經隆) said. “Those Asian ex-Japan central banks perceived to be behind the curve could further be marginalized, for instance TWD [NT dollar] and THB [Thai baht].”
Incoming Bangko Sentral ng Pilipinas governor Felipe Medalla yesterday said that the Philippine monetary authority is unlikely to raise its key rate by more than 25 basis points today.
“Most likely not,” Medalla said in a mobile phone message, when asked if a bigger rate increase is needed due to the peso’s drop.
“Of course I don’t know for sure how MBMs will vote,” he added, referring to Monetary Board members.
Jonathan Ravelas, chief market strategist at BDO Unibank Inc in Manila, said the peso might fall to a fresh record low if the Philippines opts for gradual rate hikes while the Fed tightens aggressively.
Some other policymakers are more inclined to wait. Indonesia’s central bank does not need to rush to raise interest rates unless it sees fundamental inflationary pressures, Governor Perry Warjiyo said.
Similarly, Thailand has refrained from raising borrowing costs and opted instead to cap prices of essential goods to contain inflation.
Additional reporting by staff writer
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