Most Asian currencies fell on Thursday on the back of a firm dollar, led by the South Korean won and the Philippine peso, after US Federal Reserve Chair Jerome Powell reiterated the possibility of two more rate hikes this year.
The won depreciated the most, declining 0.6% and hitting its lowest level since June 1, while the Philippine peso the Thai baht, and the Singapore dollar weakened between 0.1% and 0.4%.
The baht, which has lost nearly 3% this year and is currently at a seven-month low level, remains under pressure as the country faces an uncertain path to selecting a new prime minister, with the parliament meeting next week for the first time since a May election.
Dollar near 7-1/2-month high versus yen as central bankers reaffirm policy divergence
Citi analysts, however, have retained an overweight recommendation on the baht on a robust post-pandemic tourism recovery and hopes of political clarity in the coming weeks. They expect the baht to end the year at 31.99 per dollar, significantly above the current rate of 35.645.
The US dollar index rose after Powell said the Fed will likely raise rates further and did not rule out a hike in July. Notably, he did not see inflation abating to the central bank’s 2% target until 2025.
Meanwhile, central banks in most emerging Asian countries have kept their interest rates unchanged over the past few months as inflation trends downwards, with a rebound in tourism and activity boding well for economic growth.
“The divergence policy stance between Fed and European banks and Asian banks has been driving the decline in Asian currencies. China’s faltering economic rebound is also the bearish factor that presses on emerging markets,” said Tina Teng, a market analyst at CMC Markets.
“Asian (central) banks are expected to turn less hawkish, with some countries close to the end of the rate hike cycle.”
The Chinese yuan fell 0.1% despite the central bank setting the daily midpoint fixing stronger than expected.
GS Macro Economics analysts said China might face persisting growth headwinds, with continued property market challenges and pervasive pessimism among consumers and private entrepreneurs only partially offset by moderate policy easing.
The market is now waiting for the country’s purchasing managers’ index (PMI) numbers due on Friday. China’s factory activity likely contracted for a third straight month in June, albeit at a marginally slower pace, a Reuters poll showed on Thursday.
Most markets in the region were closed for a public holiday, including in Indonesia, India, Malaysia and Singapore.
Elsewhere, equities in the Philippines and Thailand gained up to 0.6%.
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