Most Asian currencies extended a sell-off on Wednesday, with the South Korean won and Malaysian ringgit leading declines, after hawkish rhetoric from a Federal Reserve official dampened early rate cut expectations and pushed the dollar to a one-month high.
The South Korean won fell for the fourth straight day, slumping more than 1% to trade at 1,346.20 per dollar, emerging as the worst-performing currency on a year-to-date basis.
The Malaysian ringgit closely followed, shedding about 0.5% to hit its lowest since mid-November.
Fed Governor Christopher Waller said on Tuesday that while inflation was approaching the central bank’s target of 2%, the central bank should not rush towards rate cuts until it was clearer low inflation was sustained.
“We do not see a March easing as we see the Fed may still want to continue watching the data for a while,” Maybank analysts said.
“Consequently, we expect more fine tuning in bets, especially as the FOMC (Federal Open Market Committee) at end-Jan may also dial back expectations.”
Waller’s comments led to further pressure on Asian currencies such as Thailand’s baht, the Philippines peso, the Taiwan dollar and the Indonesian rupiah which traded between 0.2% and 0.5% lower.
Bank Indonesia is set to announce its interest rate decision later on Wednesday. Analysts are widely expecting the central bank to hold rates, even as any pivot towards a dovish stance will be closely watched.
The Bank of Korea had hinted that it could shift towards policy easing after it held rates at a policy review last week.
Meanwhile, Chinese stocks slipped 0.9%, while the yuan dropped about 0.1% after disappointing data from the Asia’s largest economy exacerbated worries about growth momentum, even as a string of stimulus measures from Beijing were introduced.
Asian currencies subdued after US inflation; set for weekly losses
“Recovery (in China) clearly remains shaky. While we still anticipate some near-term boost from policy easing, this is unlikely to prevent a renewed slowdown later this year,” wrote Julian Evans-Pritchard, the head of China economics at Capital Economics.
Most other Asian equities were in the red, with South Korean stocks slumping more than 2%, despite the government’s plans to implement a package of financial policies to support stock investors and small business owners.
Shares in Kuala Lumpur, Manila and Singapore were down between 0.2% to 0.7%.
Tokyo equities pared some earlier gains, while Hanoi was up 0.3%
