BENGALURU (Aug 15): Southeast Asian currencies were pressured on Monday (Aug 15) by disappointing activity data from China, with the Indonesian rupiah and the Philippine peso leading losses, while the Thai baht weakened on mixed economic growth data.
China's yuan fell 0.3% to 6.7589 per US dollar after a spate of bearish factory and retail activity data signalled a hit to the world's second-largest economy and the region's biggest trading partner.
That underscores the surprise decision by the People's Bank of China (PBOC) on Monday to cut its interest rates on key lending facilities for the second time this year to prop up the economy.
However, the yuan faces further risks of a downtrend on rising capital outflows as rate divergence between the PBOC and other major central banks widens.
"Within emerging Asia, concerns around China's growth outlook and its insistence on a 'zero-Covid' policy has put pressure on the PBOC to diverge from its global peers and cut its prime lending rate by 10 basis points," Vishnu Varathan, head of economics & strategy at Mizuho Bank said.
"This inevitably will put depreciation pressure on yuan and with it can drag S.Korean won, Singapore dollar and to some extent Malaysian ringgit also lower; even if the US dollar directionality allows for some gains."
In Southeast Asia, the peso weakened 0.3% after firming 1.5% the prior week as expectations of a rate hike on Aug 18 supported the currency that has lost more than 8% in the first seven months of the year.
The Bangko Sentral ng Pilipinas (BSP) is widely expected to continue with its monetary tightening after an outsized 75 basis point (bps) hike in mid-July, although a similar big move is not expected later this week.
Analysts at ING, DBS, OCBC and Mizuho Bank expect a 50 bp hike to its key overnight borrowing rate to contain inflation, hovering near four-year highs.
"Yet-to-peak and still rising headline inflation ... is likely to keep policymakers resolute in their fight to tame increasing price pressures and ensure inflation expectations are not unanchored," DBS analysts said in a note.
The Thai baht eased 0.3% following weaker-than-forecast second quarter GDP data. The economy grew at its fastest pace in a year in the April-June quarter on eased Covid-19 restrictions but inflation and China's slowdown remain a drag on its nascent recovery.
In Indonesia, the rupiah was down 0.4%, after strong gains in the prior two sessions. The currency has firmed more than 1% in August so far on the back of a nascent economic recovery. It lost 4% in the first seven months of the year.
Bank Indonesia (BI), one of the few laggards in the region that has yet to begin monetary tightening, is set to meet next week against the backdrop of strong second-quarter growth and soaring inflation.
Among regional stocks, shares in the Philippines and Thailand advanced between 0.3% and 0.6%, while those in Singapore and Indonesia slipped up to 0.2%.
Markets in India and South Korea were closed for a holiday.
- Indonesian 10-year benchmark yields rise 7.5 basis points to 7.046%
- China July industrial output up 3.8%, missing Reuters poll of 4.6%
- Indonesia flags export slowdown ahead after July trade surplus beats forecast