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Asian FX climbs on subdued dollar, stocks slump on growth woes

Emerging Asian currencies inched higher on Friday as the U.S. dollar remained subdued, with the Chinese yuan firming after a report that the country’s major state banks were told to stock up the yuan to stem its descent against the greenback.

Reuters reported that the People’s Bank of China (PBoC) had instructed state banks to ask their offshore branches to review their holdings of the offshore yuan CNH=D3 and ensure U.S. dollar reserves were ready to be deployed, the scale of which could be rather big.

The yuan CNY=CFXS reversed early losses to climb 0.5%. The Indonesian rupiah IDR= climbed 0.2%, while the South Korean won KRW=KFTC and Taiwan dollar TWD=TP also edged higher.

The dollar index =USD, meanwhile, continued to hover near one-week lows.

“Stabilisation measures can help to restore market confidence and act as speed bumps to slow the pace of local currency’s depreciation,” said Christopher Wong, currency strategist at OCBC.

“However, these efforts may only provide a temporary breather to markets. Ultimately, the dominant USD trend still needs to dissipate for currency markets including to catch a more meaningful breather,” he added.

Lifting the yuan further, China decided to relax the floor on mortgage rates for first-time home buyers in some qualified cities to revive the property sector.

Among other regional currencies, the Indian rupee INR=IN climbed 0.5% after the country’s central bank hiked rates for a fourth straight time — by a widely expected 50 basis points — to tame stubbornly above-target retail inflation rate.

“With the Reserve Bank of India (RBI) hiking rates, Overnight Index Swap (OIS) rates would likely fall. We think this points to rates markets being less worried now about inflation risks in India (compared with before), likely because of RBI’s frontloaded tightening,” DBS analysts said in a note.

Stocks in the region, however, slumped on concerns over persistent hawkish talk from central banks and consequent worries about global recession.

Stocks in the Philippines .PSI fell 1.6% to their lowest level since the COVID-19 pandemic, followed by shares in Taiwan .TWII, which were down 0.8%. Malaysian equities .KLSE fell as much as 0.5% to hit a two-year low.

The sell-off in stocks resumed mainly after U.S. Federal Reserve officials gave no indication that the central bank would change plans to aggressively raise interest rates.

“Inflationary concerns also returned to the forefront with Fed officials opining that they were still not even in restricted territory in the fund rate and that they have to bring real interest rates to positive territory and hike it there for some time,” OCBC analysts said in a client note.

HIGHLIGHTS:
** Philippine c.bank says September annual inflation rate expected to stay within 6.6% to 7.4% range

** China’s factory, services surveys suggest economy struggling to rebound

Asia stock indexes and currencies at 0602 GMT

COUNTRY
FX RIC
FX DAILY %
FX YTD %
INDEX
STOCKS DAILY %
STOCKS YTD %
Japan

JPY=

-0.02
-20.35
.N225

-1.95
-10.02
China

CNY=CFXS

+0.49
-10.32
.SSEC

0.17
-16.30
India

INR=IN

+0.48
-8.85
.NSEI

0.87
-2.25
Indonesia

IDR=

+0.23
-6.40
.JKSE

-0.50
6.38
Malaysia

MYR=

+0.00
-10.12
.KLSE

0.03
-10.82
Philippines

PHP=

+0.02
-12.88
.PSI

-1.59
-18.01
S.Korea

KRW=KFTC

+0.64
-16.86
.KS11

-0.54
-27.49
Singapore

SGD=

+0.10
-5.74
.STI

-0.33
-0.56
Taiwan

TWD=TP

+0.34
-12.76
.TWII

-0.81
-26.31
Thailand

THB=TH

+0.29
-11.60
.SETI

0.09
-3.85
Source: Reuters (Reporting by Tejaswi Marthi in Bengaluru; editing by Uttaresh.V)

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