Fragile Asian currencies set for weekly losses on rising dollar, US yields

(Reuters) – Most emerging Asian currencies saw marginal gains today but looked set for weekly losses as the stronger dollar and higher US Treasury yields prompt global investors to dump regional assets.

The Indian rupee led daily gains as the central bank intervened heavily in morning trade when the currency fell to around 68.65 per dollar, approaching the record low hit in the previous session, traders said.

China’s yuan edged up from 8-1/2-year lows hit yesterday as some investors and companies sold dollars to take profits amid caution that state-owned banks could provide dollar liquidity near the 6.92 level to stabilise the currency.

The yuan’s rebound prompted traders to cut some of their bearish bets on the South Korean won and the Singapore dollar.

Emerging currencies also got a breather today as the US dollar stepped back against a basket of six major currencies.

Still, the outlook remained bleak as the US 10-year Treasury yield hovered around its highest since July 2015. The greenback was not far from a 13-1/2-year peak marked yesterday.

Treasury yields have been rising since Donald Trump won the Nov 8 US presidential election as his policies of more government spending are seen pushing up Washington’s fiscal deficit and inflation.

A recent series of solid US economic data has also spurred views that the Federal Reserve may raise interest rates more next year after a widely expected hike in December.

Asia also faces further pressure from Trump’s protectionist stance on trade due to the region’s reliance on exports.

“Regional currencies are likely to weaken further as the dollar has room for more appreciation, given larger fiscal spending, increasing pressure on trade and US policy of the repatriation of overseas profits,” said Jeong My-young, Samsung Futures research head in Seoul.

“Technically, the USD is seen excessively bought, while all other currencies are seen excessively sold. But markets are almost ignoring possibilities of corrections of the trend.”

For the first time in nine months, sentiment on all of the nine emerging Asian currencies covered in a Reuters poll has turned bearish, according to the survey published yesterday.

Ringgit, rupiah

For the week, Malaysia’s ringgit and Indonesia’s rupiah led depreciation among their regional peers.

The ringgit today fell to 4.4640 per US dollar, its weakest since Sept 29, 2015, when the currency hit a 17-year low.

The Malaysian currency has lost one per cent against the US dollar so far this week as the government’s bond prices slid.

“It is better to keep long USD holdings. Maybe there is another 2-3 per cent to run until the year-end,” said a senior Malaysian bank trader in Kuala Lumpur, when asked whether to buy the US dollar against the ringgit.

The rupiah also has slumped one per cent this week as foreign investors kept selling Jakarta stocks and Indonesia’s government bonds.

India’s rupee has skidded 0.5 per cent so far this week. The currency yesterday touched a record low of 68.8650 per dollar before recovering on intervention.

The yuan has fallen 0.4 per cent for the week, poised to suffer a third straight week of depreciation.

Singapore’s dollar has eased 0.4 per cent as the government downgraded its economic growth and exports for this year, reinforcing worries about a possible recession but keeping the chance of policy stimulus alive.

The Philippine peso has slid 0.3 per cent so far this week on continuous equity outflows.