Asian currencies ease

Emerging Asian currencies softened on Thursday after US President Donald Trump warned of imminent military action in Syria, prompting investors worldwide to sell riskier assets. Trump warned Russia that missiles "will be coming" in Syria, and lambasted Moscow for standing by Syrian President Bashar al-Assad after a suspected poison gas attack.
With attention on Syria, the US dollar did not receive much support from Federal Reserve meeting minutes, which showed that all of the policymakers felt that the US economy would firm further and that inflation would rise in the coming months. "With the war drums quietly beating in the White House, markets tend to ignore the run-of-the-mill type issues like FOMC minutes and focus on possible geopolitical escalation fears," said Stephen Innes, head of trading in Asia-Pacific for OANDA in Singapore.
The Middle East tensions also shifted some focus away from the US-China trade standoff, sending the dollar index against a basket of six major currencies slightly lower. All emerging Asian currencies posted losses, with the South Korean won falling as much as 0.5 percent, making it the worst performer of the day in the region.
The Chinese yuan was the second biggest loser, down as much as 0.2 percent, followed by the Philippine peso and the Taiwan dollar, both losing nearly 0.2 percent. "Chinese regulators continue to flag more steps to open up China's economy further, which resonated favourably in the background among all local economies, but possible US military escalation in the Middle East now has investors shaking in their boots," said Innes.
"With global equity market likely to remain sour as investors move from trade war fires into the geopolitical frying pan, risk appetite will remain fragile and this will dent regional currency sentiment." The Thai baht, the Indian rupee and Malaysia's ringgit all inched down, while the Singapore dollar erased earlier marginal gains to skid 0.1 percent.
The won fell as much as 0.5 percent against the dollar and was the biggest drag among Asian currencies.
South Korea's central bank held interest rates steady on Thursday, as expected, with inflation running more slowly than forecast and exports showing a modest improvement. Inflation slowed to 1.3 percent in March from 1.4 percent a month earlier, cementing a consensus view that any monetary tightening this year will be gradual.
The Singapore dollar crept lower against the dollar on Thursday, after creeping up slightly in early trade. The city-state's central bank will issue its semiannual monetary policy statement and data on first-quarter gross domestic product on Friday.
According to a Reuters poll, a slim majority of analysts expect the Monetary Authority of Singapore (MAS) to tighten its exchange rate-based policy for the first time in six years, with economic growth solid and the labour market showing signs of improvement. But some believe heightened US-China trade tensions may stay the central bank's hand for now. Singapore is a major supplier of electronics which feed into China's global supply chains.
"My view is that the MAS is more than cognizant of the trade war tails risk, and will probably defer this time around. This view is not in consensus as 9 of 15 economists polled by Reuters suggest MAS will raise," explained Innes.