SINGAPORE: Emerging Asian currencies slid against the dollar on Thursday, with the Chinese yuan hitting an eight-year low after the US Federal Reserve raised interest rates and signalled a faster pace of rate increases in 2017.
The Singapore dollar fell to 1.4436 per US dollar earlier on Thursday, its weakest since January. Traders later sold the US dollar to book profits from the greenback's rally, helping the Singapore currency come off lows.
Chinese state-owned banks were seen selling dollars in the onshore foreign exchange market on Thursday, two traders said, on a day when the yuan fell to an eight-year low.
Chinese state-owned banks have offered dollar liquidity regularly over the past two months in what traders believe is part of efforts to support the yuan from falling too fast.
The outcome of the Fed's policy meeting reinforces the outlook for further dollar strength, said Heng Koon How, senior FX investment strategist for Credit Suisse in Singapore.
"We continue to stay negative on euro, negative on Chinese yuan, and mostly negative on Asian currencies," Heng said.
The Fed coming across as being slightly more hawkish than before and rises in US Treasury yields are key negatives for the yuan and Asian currencies, he added.
The Fed's 25 basis-point interest rate increase on Wednesday was widely anticipated by financial markets though they appeared to have been caught out by the central bank signal of three hikes in 2017, up from around two flagged at its September policy meeting.
The relatively hawkish Fed stance came as US president-elect Donald Trump takes over with promises to boost growth through tax cuts, spending and deregulation.
After the Fed's decision, the US benchmark 10-year Treasury yield touched its highest level in more than two years, while the 2-year Treasury yield scaled a seven-year peak.
Such rises in US Treasury yields can erode the attraction of higher-yielding emerging market assets and lead to capital outflows from emerging markets.
SINGAPORE DOLLAR
Khoon Goh, head of Asia research for ANZ, said in a research note that the Singapore dollar may have more scope to fall, given that its nominal effective exchange rate (S$NEER) is still estimated to be above the lower edge of the central bank's policy band.
According to ANZ's estimates, the S$NEER is now 0.4 percent below the mid-point of the policy band, Goh said. Most analysts estimate that the policy band likely allows the S$NEER to move 2 percent from the mid-point in either direction.
"There is still room within the policy band to accommodate further Singapore dollar weakness before the lower bound is reached," Goh said.
"With further policy tightening in the US to come and Singapore's growth and inflation outlook subdued, we see the S$NEER testing the lower bound at some stage," Goh added.
KOREAN WON
The won slipped 0.8 percent against the dollar, having fallen more than 1 percent earlier on Thursday.
The won showed limited reaction after South Korea's central bank kept interest rates unchanged on Thursday as expected.
The Bank of Korea held its key policy rate steady at a record low of 1.25 percent, as authorities sit tight in the face of a political crisis at home and the Fed's signal to raise rates at a faster-than-expected pace.
THAI BAHT
The baht slipped to a two-week low of 35.716 per US dollar.
Thailand's finance minister said he was not worried about fund outflows after in the wake of the Fed hike, and the country has no need to follow suit.
Thailand's central bank is widely expected to leave its policy rate unchanged at 1.50 percent at a Dec. 21 meeting. The rate has been steady since April 2015.
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