Currencies Drop to Multiyear Lows Across Asia as Investors Rush to the Dollar

Currencies across Asia fell to multi-year lows on Thursday, as surprisingly strong US inflation data gave fresh impetus to a month-long rally in the dollar. la.

By late Thursday afternoon in Hong Kong, the greenback had strengthened markedly against a range of currencies in the Asia-Pacific region, including those of Australia, China and South Korea.

The dollar’s gain partly reflects the growing appeal of US assets such as Treasuries, which have raised yields this year. But it also signals investors’ growing wariness about riskier assets. Stocks in many parts of the world fell on worries about slowing global growth and rapid inflation, along with the risk that aggressive action by the Federal Reserve could push the US economy into recession. .

“The currency is being fooled by the fragile sentiment,” said Wai Ho Leong, strategist at Modular Asset Management, a hedge fund manager based in Singapore.

Currency slippage is a major headache for large commodity importers and for emerging markets with large foreign currency debt to deal with. They also present a challenge for central banks to balance disincentive capital flows with sustained growth, which typically requires lower interest rates.

Data released on Wednesday showed U.S. consumer prices rose 8.3 percent faster than expected in April from a year earlier — an outcome likely to weigh on the Federal Reserve. Federal to continue to raise interest rates by at least half a percentage point at a time.

The WSJ Dollar Index, which measures the US currency against a basket of 16 other currencies, rose 0.22% to 96.73. On Wednesday, it settled at the highest level since March 2020, a month in which the arrival of the pandemic prompted a stampede on the dollar.

The ICE US Dollar Index, another gauge of the dollar’s strength that measures it against six major developed market currencies including the euro and yen, rose 0.4% to 104.277, put it to its highest closing level in nearly 20 years.

“There is a big sell-off going on and people want to buy the dollar because it is a safe haven,” said Alvin Tan, head of Asia forex strategy at RBC Capital Markets in Singapore.

Mr. Tan noted that emerging market currencies such as the yuan, the Brazilian real and the South African rand were among the biggest depreciating.

In Hong Kong, the city’s de facto central bank defended its long-fixed rate against the greenback, saying it sold US dollars for the first time in more than three years.

Meanwhile, China’s offshore yuan weakened around 0.6% to trade beyond 6.8 yuan per dollar, a level it has not settled below since September 2020. , according to FactSet.

After months of relative stability, the Chinese currency has fallen rapidly in both domestic and overseas markets since mid-April.

Leong at Modular said Leong at Modular said the reading of US inflation was higher than expected, news about the Covid-19 community was transmitted higher than in Shanghai and the comment was slightly dovish. from China’s central bank on prioritizing economic growth as the yuan weakens. The currencies of China’s close trading partners have also weakened in tandem, he said.

The Australian dollar fell about 0.7% against the dollar, with one Australian dollar buying about 68.9 US cents. Australia is a major exporter of iron ore and other raw materials to China and elsewhere.

In South Korea, which has also suffered from Chinese demand, the won weakened about 0.8% to trade at more than 1,289 per dollar mid-afternoon, in addition to its weakest close in the early stages of the pandemic. Translate. That gave the coin its weakest close since July 2009, during the final stages of the global financial crisis, FactSet data shows.

The North Asian country is a major exporter of high-tech items such as semiconductors, smartphones and cars, thanks to champion companies like Samsung Electronics Co.

SK Hynix Inc.

and Hyundai Motor Co.

That leaves it vulnerable to a slowdown in global growth and a change in perception of the tech sector, according to analysts. In addition, the country is also a major energy importer, while tensions with neighboring North Korea are also running high.

On Thursday, the country’s tech-heavy Kospi Composite index fell 1.6 percent, bringing its loss to date at 14 percent. Foreign investors net sold 9.12 trillion won of Korean shares in the first quarter, or about $7.15 billion at current exchange rates, official data showed.

Elsewhere in the region, the Indian rupee weakened slightly to around $77.49/USD, down slightly earlier.

The market is not focused on domestic dynamics for individual countries, and recent rate hikes in India and Malaysia have not had much impact on their currencies, said Tan at RBC. The Reserve Bank of India surprised markets last week by raising interest rates at an unscheduled policy meeting.

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