Asian currencies set for half-year losses on rate hikes, inflation woes

Asian currencies set for half-year losses on rate hikes, inflation woes
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(June 30): All emerging Asian currencies were set for half-yearly losses on Thursday, with the South Korean won set to lose the most, as policy tightening by the US central bank and concerns over global economic outlook spurred selling in Asian assets.

The won dropped 8.4% so far this year, while the Philippine peso and Indian rupee were on track to post half-yearly losses of 7.3% and 5.8%, respectively.

Emerging markets in the six-month period were battered by capital outflows due to the US Federal Reserve kicking off its tightening cycle, Russia's invasion of Ukraine, and inflation from higher commodity prices.

Among local drivers, China's insistence on a zero-Covid policy also spurred selling as the country's repeated imposition of restrictions means a slower economic recovery for the region's largest economy.

"The broader market ... they need some more convincing because I think at the back of their mind, they've still got this hesitancy due to the ongoing zero Covid policy," said Stephen Innes, managing partner at SPI Asset Management.

Nearly all stock markets in Asia were set for half-yearly losses, although markets in Indonesia climbed 5.3%, with many coal miners seeing sharp gains amid soaring energy prices.   

For the day, most Asian currencies weakened as even more hawkish signalling from the Fed and China's weaker-than-expected factory and services data kept a lid on investor sentiment.

The Indonesian rupiah shed 0.3%, and was set to lose 4.3% for the half year. The Thai baht lost 0.2%, on track to drop 5.4% so far this year.

Fed Chair Jerome Powell said overnight there was a risk that the planned policy tightening might slow down the economy too much, as he reaffirmed the central bank's commitment to fight inflation.

"The messaging reinforces the notion that the current economic landscape is operating in a higher rates environment," analysts at Maybank said in a note.

However, the Singapore dollar edged up 0.2% and was set to be the best-performing Asian currency in the six-month period, losing just 3%.

Philippines' incoming central bank governor said he would consider more aggressive rate hikes to support the local currency.

The country's new president, the son and namesake of late dictator Ferdinand Marcos, also swore in.

The peso rose early in the trading day, but settled about 0.1% lower.

Stocks in the region traded mixed, with Philippine stocks and Thai stocks shedding 2.3% and 0.8%, respectively, while Chinese and Malaysian rose 1.1% and 0.3%, respectively.


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