Most emerging Asian currencies slid on Thursday as US Federal Reserve Chair Janet Yellen affirmed her views of an interest rate hike this year and the Asian Development Bank cut regional economic forecasts. The South Korean won hit a two-year low as offshore funds continued to sell the currency amid volatile Chinese stocks. Thailand's baht fell to its weakest in more than six years as Finance Minister Sommai Phasee on Wednesday said he expected economic growth to slow in the second half.
The Singapore dollar slid to a three-month low of 1.3686 per the US dollar as June export data suggested a more sustained period of external improvement is necessary to lift the trade-reliant economy amid fitful global demand. Yellen on Wednesday in her semiannual congressional testimony repeated that the Fed will likely raise interest rates this year if the US economy expands as expected.
If the Fed waits longer to increase rates, the US central bank may have to hike them more rapidly when it starts changing the policy, she said. Those remarks supported expectations that the Fed may raise rates as soon as September. A rise in US borrowing costs usually hurts attractiveness of higher-yields of emerging Asia. ANZ senior currency strategist Khoon Goh said the markets were still pricing in a "very gradual" normalisation and had not fully factored in a September US rate hike.
"A hike in September will still be seen as dollar positive," Goh said, adding that emerging Asian currencies may weaken due to the greenback's strength. Adding to blows to regional currencies, the ADB has cut its 2015 and 2016 growth forecasts for China and the rest of Asia, largely due to the slower than expected growth in the region's largest economy and in developed economies elsewhere. The won lost as much as 0.6 percent to 1,150.4 per dollar, its weakest since July 2013.
The South Korean unit pared some of the losses as exporters bought the won for settlements on dips with a psychological support at the session low. Still, traders said such corporate demand was not that strong. The won may weaken to 1,163.5, its low of 2013, once the currency ends the session weaker than 1,147.3, the 23.6 percent Fibonacci retracement of its appreciation from 2009 to 2014, analysts said.
The baht fell 0.4 percent to 34.226 per dollar, its weakest since June 2009 as foreign and local banks chased the greenback on expectations of higher US interest rates. The Thai currency may weaken further to 34.471, the 76.4 percent Fibonacci retracement of its appreciation from 2009 to 2013, analysts said. Stock analysts expect that a weaker baht may lead foreigners to sell Thai equities to limit their currency losses. The baht recovered some of earlier losses as the greenback pared gains against a basket of major currencies. The central bank sold in an auction 40 billion baht ($1.2 billion) worth of three-year bonds at an average yield of 1.4884 percent, lower than previous one.
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