Asian currencies drop after US dollar gains on hawkish Fed (.)

Asian currencies fell on Thursday as capital outflows and the US Federal Reserve’s hawkish stance on monetary policy that boosted Treasury yields and strengthened the dollar dampened risk sentiment.

Investors awaited monetary policy decisions from central banks in Indonesia and the Philippines, which are widely expected to keep interest rates steady later in the day and for the rest of the year.

The Philippine peso fell 0.5% to a two-week low and Indonesia’s rupiah was down 0.1% ahead of the rate decisions.

In Thailand, the baht pared early losses to depreciate 0.1% after Prime Minister Srettha Thavisin said the country’s central bank was monitoring the weak baht, which was not entirely bad for the economy.

Yield on the benchmark 10-year bonds rose two basis points to 3.190%. They touched a 16-month high of 3.26% on Wednesday.

Emerging Asia’s central banks may struggle to find comfort from the Fed’s skip given that higher US Treasury yields and a firm dollar continue to bear down, Mizuho analysts said in a note.

Thai baht, stocks hit multi-month lows on high oil prices

Eroding real yield spreads against the US threaten emerging Asian currencies and macro stability through capital flows, they said.

The US central bank held interest rates steady on Wednesday and projected a further rate increase by the end of the year, saying monetary policy was likely to be significantly tighter through 2024 than previously thought.

The yield on two-year US Treasury notes rose to a 17-year high of 5.1970%, while the 10-year yield jumped to 4.4310%, a new 16-year peak.

The dollar index, which measures the currency against a basket of rivals, rose as high as 105.59 on Thursday, its strongest since March 9.

Most regional stock markets retreated, tracking Wall Street’s overnight losses.

Stocks in Singapore and South Korea were set for their largest daily falls in over a month.

Equities in Seoul slumped 1.6% and Singapore’s benchmark index slipped 1.1%.

Taiwan’s shares slid 1.4%.

Bangkok and Manila shares were the outliers in the region, rising 0.3% and 0.4% respectively.

Separately, data on Wednesday showed Taiwan’s export orders contracted for the 12th-straight month in August and missed expectations, as demand remains subdued due to factors such as high interest rates and weak demand from China.