Most emerging Asian currencies rose on Friday and were set to report weekly gains after the US Federal Reserve left interest rates unchanged, while sustained concerns over slowing global growth clouded their outlook. The Fed on Thursday refrained from its first tightening in nearly a decade due to worries about the world's economy, financial volatility and sluggish inflation at home, although it left the door open for a modest rate hike later this year.
The decision pushed the US dollar to a three-week low against a basket of six major currencies. Emerging Asian currencies, however, failed to run at full throttle as the unhealthy global economy is likely to keep hurting regional economies. "Asia's markets, particularly FX but also fund raising, may receive some respite for now, but note that the Fed's stance is a reflection of growing malaise in the global economy," said Taimur Baig, Deutsche Bank Chief Economist Asia, in a note.
"Even without a crisis, a slowing of the Chinese economy is causing major headwinds to Asian exports, investment, and fund flows." To support growth, many Asian central banks are likely to slash interest rates. By contrast, the Fed is still expected to raise borrowing costs although chances of this year's lift were seen fading. Thailand's central bank does not expect a return of strong cash inflows as the market still sees a US rate hike later this year, a senior central bank official said. Uncertainty over timing of a US rate increase is also expected to put pressure on emerging Asian currencies.
Senior South Korean economic policymakers said the Fed's choice to hold rates steady meant an elevated level of uncertainty would continue to affect financial markets for some time. Most emerging Asian currencies were set to see weekly gains, having priced in possibilities of the Fed keeping interest rates.
Before the decision, bearish bets on regional currencies already fell, a Reuters poll showed on Thursday. The South Korean won has gained 1.9 percent throughout this week as Standard & Poor's raised the country's sovereign credit rating. If the appreciation is maintained, that would be the largest weekly rise since December 2011, according to Thomson Reuters data.
Malaysia's ringgit has jumped 1.8 percent against the dollar so far this week as investors covered short positions in the worst-performing Asian currency so far this year. The ringgit suffered losses in the previous 12 consecutive weeks on falling commodity prices and graft allegation swirling around Prime Minister Najib Razak and indebted state fund 1Malaysia Development Berhad.
Thai Baht has advanced 1.2 percent on the week on demand from exporters and as traders unwound bearish bets. The Singapore dollar has appreciated 1.0 percent on growing demand for safer assets as China's economic slowdown roiled global financial markets. The Taiwan dollar has risen 1.0 percent as foreign investors bought local stocks. The Indian rupee has gained 0.8 percent, while the Philippine peso rose 0.7 percent. China's yuan has gained 0.2 percent as the central bank was frequently spotted intervening to stabilise the currency. "There may be a window of opportunity created by a temporary reversal of USD strength against the Asians," said Heng Koon How, Credit Suisse Private Bank's senior currency strategist. "Investors are strongly encouraged to make best use of this window of opportunity to hedge their Asian currency risks and exposure."
Comments
Comments are closed.