ASIAN currencies slumped to their weakest in more than 19 months after the US dollar strengthened amid the prospect that US interest rates may stay higher for longer.
The Bloomberg Asia Dollar Index fell 0.1 per cent on Thursday (Jun 27) to the lowest level since November 2022. The move came after the Philippine peso and the India rupee closed near record lows the previous day while the South Korean won closed in on the key 1,400 per US dollar level.
The resurgent US dollar is wreaking havoc in Asia this year, putting pressure on central banks to step up the defence of their currencies. Traders are watching for authorities to intervene in Japan while policymakers in India, Vietnam and Indonesia have all stepped into the market.
“The high-for-longer US rates environment is undermining recovery hopes for Asia currencies,” said Christopher Wong, FX strategist at OCBC in Singapore. “And now woes are piling on following the renewed weakness in the yuan and the yen. Central banks may have to resort to stronger intervention to smooth volatility.”
The Bloomberg Dollar Spot Index has climbed almost 5 per cent since the end of December as Federal Reserve officials signal that they may hold off on rate cuts until inflation falls sustainably to their target.
The yuan’s weakness has also contributed to the Bloomberg Asia Dollar Index’s decline of over 3 per cent this year. The Chinese currency has fallen more than 2 per cent in 2024.
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The weakness in the yen and the yuan will likely have spillover effects on regional currencies, especially the won and the Taiwan dollar, said Alvin Tan, strategist at RBC Capital Markets in Singapore.
Other emerging-market currencies have not been spared either, with the Turkish lira and Brazilian real sliding more than 10 per cent this year. BLOOMBERG
