Asian currencies weaken on concerns over US rate outlook, China growth

THE Philippine peso fell on Thursday after the country’s central bank left its benchmark interest rate unchanged, while other regional currencies also declined on worries over China’s slowing economic growth and higher-for-longer rates in the U.S.

The peso declined 0.2% after rising as much as 0.1% earlier, as Bangko Sentral ng Pilipinas (BSP) kept interest rates steady at 6.25% for a third straight meeting.

The BSP’s decision to extend its policy pause followed data last week showing the domestic economy grew at its slowest annual pace in nearly 12 years in the second quarter.

While the risks to inflation were tilted to the upside, BSP governor said the central bank “recognised the challenging outlook for economic growth” and it was ready to resume tightening when necessary.

The South Korean won and the Singaporean dollar weakened 0.4% and 0.1%, respcetively.

The dollar rose broadly as a resilient U.S. economy reinforced expectations that the Federal Reserve’s interest rates could stay higher for longer.

Although, minutes from the Fed’s July meeting showed officials were divided over the need for more rate hikes.

“Given that the Fed reiterated its data-dependent stance in the minutes, it may still have to take a series of upside surprises in inflation to anchor down views of additional tightening,” IG analysts said in a note.

“But for now, the minutes were tapped on as a catalyst for the risk rally to further unwind, alongside jitters in the Chinese space.”

Rate expectation in the U.S. were in contrast with hopes of further monetary easing in China to prop up a faltering economic recovery, driving yield differentials between the world’s two largest economies to the widest level in 16 years and pressuring the yuan.

China’s major state-owned banks were seen selling dollars to buy yuan in both onshore and offshore spot foreign exchange markets this week in an attempt to slow the Chinese currency’s depreciation, Reuters reported.

The yuan was last down 0.1%. The ringgit eased as much as 0.4% to its weakest level in more than a month.

Malaysia’s gross domestic product (GDP) data is due on Friday and a Reuters poll found that economic growth likely slowed to its weakest in nearly two years in the second quarter on an annual basis.

The Indian rupee was last down 0.2% at 83.103 to the U.S. dollar, after Reuters reported that the Reserve Bank of India (RBI) likely sold dollars via public sector banks to ensure that the local currency did not fall to a record low.

The Thai baht, which declined as much as 0.4% earlier in the session, was last flat, still hanging at its lowest level since June 30.

Thailand has been under a caretaker administration since March and parliament has been deadlocked over the formation of the next government after the anti-establishment Move Forward met resistance from conservative lawmakers allied with the royalist military.

Thai lawmakers will vote for a new premier next week, the house speaker said, after a court rejected a bid by election winner Move Forward to challenge parliament’s blocking of its candidate. Indonesian markets were closed for a holiday.

HIGHLIGHTS

** Japan’s exports fell in July for the first time in nearly 2-1/2 years

** Singapore’s non-oil exports fall for 10th month in July – Reuters