Asian currencies set to post weekly losses on global growth worries

Asia’s emerging market currencies fell on Friday, and were set to record weekly losses as the global growth outlook worsened after China’s dismal economic growth data and as inflation worries persist.

Regional currencies seemed to shrug off weakness in the U.S. dollar, which dipped after two Federal Reserve policymakers said they favoured a smaller rate rise than the 100 basis points that investors were betting on. FRX/

China’s gross domestic product slowed sharply in the second quarter, highlighting the colossal toll on activity from widespread COVID-19 lockdowns.

China’s yuan CNY=CFXS hit a two-month low, while stocks .SSEC dropped to a month-low as homebuyers’ threats to stop mortgage payments on unfinished apartments dented sentiment, despite Beijing’s assurance to solve the crisis. .SS

Thailand’s baht THB=TH and Taiwanese dollar TWD=TP declined between 0.2% and 0.5%, respectively. South Korea’s won KRW=KFC, the region’s worst performing currency this year, dropped 0.9% to hit levels not seen since 2009.

“The inability of Asian FX to rally on U.S. dollar weakness like the DM (developed market) space overnight suggests that more downside lies ahead, especially if strong retail sales in the U.S. tonight put a 1.0% Fed hike back on the agenda,” said Jeffrey Halley, senior market analyst for Asia Pacific at OANDA.

U.S. retail sales data, due later in the day, is likely to provide a glimpse of the extent to which inflation has peaked ahead of key Federal Reserve meeting later this month.

Heightened concerns over economic growth have contributed to outflows from riskier Asian assets, despite central banks in the region taking tightening measures to curb broad inflationary pressures and tackle steep currency depreciation.

On the other hand, expectations that the Fed would hike rates aggressively drove the dollar to a 20-year peak this week.

“Higher rate hikes in Asia are unable to stop the dollar from surging against Asian currencies,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

Despite the hawkish central bank moves, the Singaporean dollar SGD=, Philippine peso PHP= and South Korean won KRW=KFTC have fallen between 0.5% and 2% this week.

The Monetary Authority of Singapore (MAS) and Bangko Sentral ng Pilipinas (BSP) tightened policy in surprise off-cycle moves, while the Bank of Korea also raised its policy interest rate by an unprecedented half point.

Bank of Thailand (BoT) and Bank Indonesia (BI) are the only major regional central banks yet to kick-start normalising super-loose monetary policies sparked by the pandemic.

A senior director at BoT on Friday said the bank is highly likely to raise its key rate at its August meeting, while BI’s policy meeting next week could finally see the central bank begin its hiking cycle.

Meanwhile, Indonesia booked a larger-than-expected trade surplus in June, as palm oil exports surged after the lifting of an export ban a month earlier while coal shipments to Europe also jumped.

In Sri Lanka, the parliamentary speaker accepted President Gotabaya Rajapaksa’s resignation after he fled to Singapore to escape a popular uprising brought about by his country’s worst economic crisis in seven decades. Sovereign dollar bond US85227SAW61=TE was slightly below record-high yields.
Source: Reuters (Reporting by Harish Sridharan in Bengaluru; Editing by Amy Caren Daniel)