Asian currencies retreated against the US dollar on Thursday as a sombre mood weighed on investors post the US Federal Reserve’s “hawkish pause,” with a faltering Chinese economic recovery further blunting the risk appetite.
The world’s second largest economy slowed in May with industrial output and retail sales growth missing forecasts, adding to expectations that the country will need to do more to shore up a shaky post-pandemic recovery.
The yuan gained 0.1% reversing a fresh near seven-month low touched earlier in the day, while equities in Shanghai advanced.
“Rate cuts in China are likely to be part of a broader package of stimuli being processed,” OCBC analysts said as the country’s central bank cut the borrowing cost of its medium-term policy loans.
China’s economic development has stayed weak, hamstrung by a lull in the property sector, weak export demand and the absence of consumer confidence.
“Near-term weakness in the RMB could pressure Asian currencies that are more dependent on Chinese demand, but they are also being offset by a bottoming out in Asian exports given a possible upturn in the tech cycle,” said Wei-Liang Chang, forex and credit strategist at DBS Bank.
Amid risk-off sentiment, the Thai baht weakened 0.4% to mark its worst day in more than a week.
The South Korean won was about flat while Japan’s yen was the worst loser, slipping around 9%.
The Philippine peso declined 0.1%.
Most Asian currencies in holding pattern ahead of US data; yuan falls
The country’s central bank deputy governor said the Fed’s monetary policy actions are now seen as less of a factor for its decision-making.
The Philippine central bank, set to meet on June 22, kept its benchmark interest rate steady at its last policy meeting as inflation remained on track to ease toward the target range.
Investors cut back short bets on emerging Asian currencies as most local central banks maintained their hold stance on interest rates, but remained firmly in bearish territory for Malaysian ringgit and China’s yuan, a Reuters poll showed on Thursday.
Meanwhile, equities in the region were largely mixed, with stocks in Indonesia and the Philippines falling 0.3% and 0.4% respectively, and shares in Singapore and China advancing 0.4% and 0.6%, respectively.
The US Federal Reserve left its benchmark funds rate window at 5-5.25% in its monetary policy tightening cycle.
Some analysts called it a “hawkish pause” as it signalled borrowing costs would increase by another 50 basis points (bps) by December-end.
“The FOMC statement reflected a somewhat benign assessment of the economy, pointing out that economic activity has continued to expand at a modest pace,” DBS analysts said in a note.
The Russian rouble depreciated about 0.4% against the US dollar amid expectations of additional rate hikes after the appointment of a new central bank governor.
The Turkish Iira was 0.4% weaker as the country went through a retreating liquidity market.
The dollar rose 0.26% to 103.3, recovering from a four-week low of 102.66 on Wednesday.
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