Yellen's rate stance hits Asia FX

Emerging Asian currencies and bonds fell on Friday, extending their weekly slump as Federal Reserve Chair Janet Yellen signalled an interest rate hike was imminent, intensifying fears of capital flight from the region to the United States. The Chinese yuan hit an eight-year low as the People's Bank of China set its daily guidance rate weaker for an 11th straight session, reflecting the dollar's strength.
Malaysia's ringgit touched a 10-month trough with government bond prices down although the country's central bank said the latest steps to support the currency were not capital controls. The Philippine peso fell to the lowest since November 2008, the middle of the global financial crisis. South Korea's won slid to its weakest in about five months, although the foreign exchange authorities were suspected of slowing down its weakness, traders said.
Earlier, a foreign exchange official described the won's decline as a little excessive. Yellen said on Thursday in Congressional testimony that the election of Donald Trump as US president has done nothing to change the Fed's plan to raise interest rates "relatively soon". The comments, along with solid economic data on the labour market and inflation, pushed the dollar up to a 13-1/2-year peak against a basket of six major currencies.
US Treasury yields also jumped. "Yellen almost confirmed a December hike. At the same time, she was more hawkish than before," said Jeong My-young, Samsung Futures research head in Seoul, given her comments that US wages were rising and growth had accelerated over the second half of the year. "The US economy is almost the only country whose economy is growing and monetary policy differentials will be widened. So, other currencies including Asian units have no choice but to weaken against a strong dollar," Jeong added.
Emerging Asian currencies have been under severe pressure from higher US yields on expectations that Trump's policies will push up inflation. The president-elect's protectionist stance on trade also hurt the regional units, given Asia's heavy reliance on exports.
The ringgit on Friday fell to 4.4090 per dollar, its weakest since January 18. The 10-year Malaysian government bond yield rose to an 11-month high of 4.4349 percent as some traders cited continuous liquidation by long-term foreign investors. The Malaysian currency led weekly losses in emerging Asia with a 2.9 percent slump against the greenback so far this week. That would be the largest weekly depreciation since late September last year.
"A dangerous combination of extremes is likely amplifying movements, as volatility expectations remain elevated, yet liquidity is extremely weak," said Stephen Innes, senior FX trader for FX broker OANDA in Singapore. The Philippine peso was set to suffer the largest weekly slump in more than three years, with a 1.6 percent slide so far this week, as foreign investors dumped Manila shares. The won has fallen 1.4 percent throughout the week as foreigners pulled money out of South Korea's stocks and bonds.
Singapore's dollar has slid 0.9 percent so far this week as disappointing October exports data raised risks of a recession and the odds for monetary stimulus. The Indian rupee has lost 1.2 percent for the week, while the Indonesian rupiah was down 1.0 percent.