Yellen's US rate hike views hit Asia FX, weekly losses seen

[SINGAPORE] Most emerging Asian currencies slid on Friday and were set to suffer weekly losses as Federal Reserve Chair Janet Yellen kept expectations of a US interest rate hike in 2015 alive and worries about a global economic slowdown lingered.

The Taiwan dollar hit a six-year low one day after the island's central bank cut its benchmark interest rate for the first time since 2009.

Malaysia's ringgit and Indonesia's rupiah fell to their lowest levels since the Asian financial crisis in 1998. The Singapore dollar stayed around a six-year trough on disappointing August output data.

Ms Yellen said on Thursday she expects the Fed to begin raising borrowing costs later this year as long as inflation remains stable and the US economy is strong enough to boost employment. The comments came one week after the U.S. central bank held off on a long-anticipated tightening.

"Asian FX will continue to be under pressure to weaken,"said Sean Yokota, head of Asia strategy for Scandinavian bank SEB in Singapore.

"We have a stronger USD from the Fed putting a rate hike back on the table for December and China continuing to slow."

China's factory sector activity shrank at its fastest pace in 6-1/2 years in September, a private survey showed on Wednesday, boosting concerns that the slowdown in the world's second-largest economy is deepening.

The country is a major export market for other Asian nations. So, some of their central banks are expected to cut interest rates to cope with China's slowdown.

On Thursday, Taiwan's central bank cut the discount rate by 12.5 basis points to 1.75 per cent. The rate had been kept at 1.875 per cent since the last hike in 2011.

In the wake of Taiwan's move, Asian central banks "may be shifting the policy focus towards growth as opposed to focusing on the potential negatives of further monetary easing in the face of a Fed lift-off," Emmanuel Ng, a foreign exchange strategist with OCBC Bank, wrote in a note.

Early on Friday, the Taiwan dollar fell to 33.275 per the U.S. dollar, its weakest since May 2009.

The island's currency then turned firmer from its previous close, which traders said the central bank on Thursday weakened through usual last-minute intervention.

The Taiwan dollar's outlook stayed weak as some economists and analysts expect a further rate cut.

"As we believe further monetary easing remains on the cards and there could be another potential RMB devaluation by year end, we decided to lift the target and the stop/loss to 34 and 33 respectively," Andy Ji, Asian currency strategist for Commonwealth Bank of Australia (CBA), said in a note.

The target referred to the Taiwan dollar's one-month non-deliverable forwards (NDFs) against the greenback. The NDFs strengthened to 33.100 from Thursday's close of 33.215.

CBA earlier recommended selling the Taiwan dollar NDFs at 32.600 for a target of 33.300.

The ringgit led weekly slides in emerging Asian currencies with a 4.0 per cent loss against the dollar so far. That would be the largest weekly depreciation since May 1998, according to Thomson Reuters data.

Earlier on Friday, the Malaysian currency weakened to 4.3900 per dollar, its lowest since January 1998. The country pegged the ringgit at 3.8000 to the dollar from 1998 to 2005.

The currency is the worst performing Asian currency this year. Traders says one factor hurting it has been allegations of graft and mismanagement linked to indebted state fund 1Malaysia Development Berhad (1MDB). Prime Minister Najib Razak, chairman of its advisory board, has denied any wrongdoing.

South Korea's won lost 2.7 per cent this week as offshore funds sold it.

The rupiah has weakened 2.1 per cent on month-end dollar demand for the week, hitting 14,700 per dollar, its weakest since July 1998.

Indonesia's central bank will announce a new policy package next month to support the rupiah, a Bank Indonesia official said. That came as the authority was frequently spotted intervening to save the second-worst performing Asian currency this year, traders said.

Thailand's baht has slid 1.8 per cent on stock outflows so far this week.

The Singapore dollar has lost 1.6 per cent so far this week, while the Taiwan dollar has eased 1.0 per cent.

REUTERS