Asian currencies dip after Fed chairman's upbeat remarks lift dollar

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(July 18): Asian currencies weakened on Wednesday, as Federal Reserve Chairman Jerome Powell's optimistic comments on the U.S. economy strengthened expectations of more interest rate hikes this year and lifted the dollar.

In closely-watched congressional testimony on Tuesday, Powell said he saw the United States on course for years more steady growth, while largely discounting the risks associated with a trade war.

The dollar rose as high as 113.08 against yen on Wednesday, its strongest since Jan 9.  

"Fed chief Powell's testimony sent the dollar stronger overnight. And as a result of that, we have seen Asian currencies on the back foot today," said Khoon Goh, ANZ's head of Asia research, based in Singapore.

He added that regional currencies' weakness was also due to the unwinding of long positions, after the previous days' advances. 

The South Korean won saw the Asian currencies' biggest decline of the day, shedding 0.35% against the dollar. 

On Wednesday, the South Korean finance ministry cut its economic growth forecast for this year, citing a weak labour market recovery and global trade tensions.

Indonesia's rupiah dropped 0.24% to extend its losses to about 6% for the year. 

The Indonesian central bank's move to raise its main policy rates by a total of 100 basis points in six weeks, between May 17 and June 29, has not supported the rupiah much. 

Bank Indonesia is expected to pause its monetary tightening cycle on Thursday, a Reuters poll showed, but it will continue to focus on stability of the rupiah.

Malaysia's ringgit fell for the second consecutive day, pulled down by weak crude oil prices. Energy exports make up a significant portion of Malaysia's economy. 

Chinese yuan's weakened on the day, adding to the regional currencies' negative mood, analysts said.
Indian rupee

The Indian rupee fell just 0.1% on the day, a much smaller decline than some other regional currencies.

While the rupee has been affected by concerns over India's trade deficits and high inflation, the country's reduced dependency on trade revenue will shore it up this year, some analysts said.  

All Asian currencies have declined this year in the fallout from the U.S.-China trade war.

"The Indian rupee will not be much impacted as India's exports to GDP share is very low and India is not as exposed to global supply chains as other Asian countries," said ANZ's Goh. 

"That is why we have seen the Indian rupee, in more recent times, not weakening as much as the currencies of Korea and Taiwan for example."

The following table shows rates for Asian currencies against the dollar at 0550 GMT.

  Change as of  0550 GMT                              
  Currency               Latest  Previous    Pct
                            bid       day   Move
  Japan yen             113.010    112.85  -0.14
  Sing dlr              1.368      1.3646  -0.21
  Taiwan dlr            30.549     30.516  -0.11
  Korean won            1129.90    1124.1  -0.51
  Baht                  33.340      33.24  -0.30
  Peso                  53.430      53.39  -0.07
  Rupiah                14415.0     14365  -0.35
  Rupee                 68.560      68.45  -0.16
  Ringgit               4.055      4.0445  -0.26
  Yuan                  6.710      6.7035  -0.09
  Change so far in 2018                                      
  Currency              Latest   End 2017    Pct
                              bid                            Move
  Japan yen             113.010    112.67  -0.30
  Sing dlr              1.368      1.3373  -2.21
  Taiwan dlr            30.549     29.848  -2.29
  Korean won            1129.90   1070.50  -5.26
  Baht                  33.340      32.58  -2.28
  Peso                  53.430      49.93  -6.55
  Rupiah                14415.0     13565  -5.90
  Rupee                 68.560      63.87  -6.84
  Ringgit               4.055      4.0440  -0.27
  Yuan                  6.710      6.5069  -3.02