Asian FX Weak on Strong Greenback; the peso surpasses

(Sept. 23): Most emerging Asian currencies were broadly weaker on Friday (Sept. 23) against a stronger dollar supported by a hawkish US Federal Reserve, but the Philippine peso outperformed.

As the central banks of Taiwan, Indonesia and the Philippines all raised interest rates on Thursday, the rupiah fell 0.2% and the Taiwanese dollar 0.3%, with only the peso managing to make gains. gains of 0.2%.

The Chinese yuan fell 0.3% to its lowest level in more than two years.

Bank Indonesia’s rate hike on Thursday was bigger than expected, while Taiwan’s central bank raised its key rate for the third time this year, and the Philippines’ central bank made its fifth rate hike. rate in 2022, with an increase of half a percentage point in line with expectations.

Global risk appetite was sluggish after the US Federal Reserve (Fed) made its third rate hike of 75 basis points (bps) this year, signaled further hikes and warned of losing confidence in the soft landing of the US economy.

“We estimate that the BSP (the central bank of the Philippines) may need to follow another 50 basis points increase to 4.75% in November, and possibly follow up with another 25 basis points to 5% when the last meeting of the year,” Chua Han Teng, an economist at DBS, said in a note.

With more rate hikes in sight, the peso may not be able to hold its ground, analysts said.

The prospect of a higher terminal rate from the Fed in the face of entrenched inflation would potentially weigh more on the peso, DBS’s Teng said.

The Fed’s aggressive hike projections pushed US Treasury yields higher and sparked a new round of dollar buying, pushing the greenback to near two-decade highs and weighing on Asian assets more risky.

“The big macro factor driving the markets right now is a strong dollar,” said Alvin Tan, head of Asian currency strategy at RBC Capital Markets.

“And so it doesn’t matter if there’s a differential effect due to rate hikes…in the grand scheme of things, we’re in a very macro-dominated market right now, and it doesn’t really pay attention to what’s who. happens with the domestic policies of each country,” Tan said.

Asian stocks were on course for the fourth straight weekly decline, with shares in Singapore and Taiwan falling more than 1.1% each, while shares in Seoul fell more than 2%.

The ringgit, down nearly 9% on the year, lost 0.2% on Friday.

Malaysia will not impose capital controls or peg the ringgit to the US dollar, the central bank said on Friday, as the currency traded near a 24-year low.

Malaysia’s consumer price index rose 4.7% year on year in August, in line with expectations, government data showed on Friday.

Meanwhile, the Indian rupee fell 0.1%, paring losses after falling to a record low, while Mumbai stocks fell 1.3%, on track for their second consecutive weekly loss. .

The Reserve Bank of India likely sold dollars through state-owned banks on Friday after the rupee extended losses to a record high, three traders said. Reuters.

Strong points:

  • Singapore’s key consumer price indicator rose 5.1% in August, slightly more than expected, driven by larger increases in services and food prices, official data showed.
  • Indonesian benchmark 10-year yields rose 9 basis points to 4.343%.