Asian currencies marching towards the sharpest weekly decline in nine months after the federal Reserve boosted its 2015 interest-rate projection. China's yuan led the retreat doubling in its exchanging band.
The Fed, while signaling this week that the goal rate will remain at zero to 0.25 percent in 2014, said it may touch 1 percent by the end of 2015, greater than 0.75 percent assumed previously. The yuan was on tracked for a record five-day drop after China’s financial authority trim the daily reference rate to the weakest since November. That comes almost a week after it widened the band in which the currency is allowed to exchange either side of the fixing to 2 percent.
“The U.S. rate outlook doesn’t look good for emerging-market currencies, including regional currencies,” said Saktiandi Supaat, Singapore-based head of foreign-exchange research at Malayan Banking Bhd. “With the yuan band widening, the Chinese are trying to remove the one-way appreciation bets to create flexibility in the currency.”
The Bloomberg-JPMorgan Asia Dollar Index, which records the region’s 10 most-active currencies, plummeted 0.9 percent from March 14 to 114.36 as of 12:15 p.m. in Singapore, the largest pullback since June. The yuan downgraded 1.2 percent to 6.2253 per dollar in in Shanghai and touched 6.2370 earlier today, the weakest mark since February last year, China Foreign Exchange Trade System financial values displayed.
‘Surprised Markets’
The U.S. central bank also slashed its bond-purchasing program this week by a further $10 billion to $55 billion. It started trimming the stimulus at the opening of the year from $85 billion, which prompted a reversal of inflows to emerging-market assets. Fed Chair Janet Yellen said March 19 that rates could start surging “around six months” following an end to the purchases.
“Tapering has been priced in, but the expectation for higher interest rates was what surprised markets,” said Leo Rinaldy, an economist at PT Mandiri Sekuritas in Jakarta.
The Philippine peso sagged down 1.3 percent to 45.240 per dollar this week, Malaysia’s ringgit relinquished 0.9 percent to 3.3099 and Taiwan’s dollar backslide 0.8 percent to NT$30.622. Indonesia’s rupiah relinquished 0.8 percent to 11,451, South Korea’s won gave up 0.9 percent to 1,082 and Thailand’s baht retreated 0.4 percent to 32.42. India’s rupee soared 0.2 percent to 61.0550.
China’s currency also slide lower amid indications of growth in Asia’s biggest economy is cooling after reports showed a surprising decline in exports and slowing factory output. The risk of further defaults is also weighing on sentiment. The People’s Bank of China trim down the daily fixing by a total of 0.21 percent this week to 6.1475 per dollar.
China Defaults
Shanghai Chaori Solar Energy Science & Technology Co. failed to make a full coupon payment on March 7, the first default in China’s onshore market. Government officials said this week that developer Zhejiang Xingrun Real Estate Co. has insufficient cash to repay 3.5 billion yuan ($562 million) of debt.
“Yuan depreciation is likely to persist for a while longer as economic fundamentals are weakening and the PBOC continues to cut the fixings,” said Daniel Chan, a Hong Kong-based strategist at China Silver Global Investment Consultant Ltd. “There are also risks that structured product investors will have to unwind long positions.”
Malaysia Development
Elsewhere in Asia this week, Philippine central bank Governor Amando Tetangco indicated interest rates could bolster after keeping benchmark borrowing costs at a record low 3.5 percent since October 2012. The next policy review is March 27.
Bank Negara Malaysia cutted the lower end of its projection for 2014 economic progress this week, saying inflation will hurt household spending amid an uneven global recovery.
Gross domestic product may hike 4.5 percent to 5.5 percent in 2014, after surging 4.7 percent last year, according to the central bank’s annual report issued March 19. That’s wider than the Finance Ministry’s previous range of 5 percent to 5.5 percent. Inflation may come in between 3 percent to 4 percent, in comparison with 2.1 percent in 2013, it said.
“Fed officials’ rate forecasts were more hawkish than expected, and the market is worried about pressure from fund outflows,” said Michelle Tsai, a Taipei-based economist at Jih Sun Securities Co.
