Asian FX set for half-year losses on rate hikes, inflation woes


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All emerging Asian currencies were set for half-yearly

losses on Thursday, with the South Korean won set to lose the most, as policy

tightening by the U.S. central bank and concerns over global economic outlook

spurred selling in Asian assets.

The won dropped 8.4% so far this year, while the Philippine peso

and Indian rupee were on track to post half-yearly losses of

7.3% and 5.8%, respectively.

Emerging markets in the six-month period were battered by capital outflows

due to the U.S. Federal Reserve kicking off its tightening cycle, Russia’s

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invasion of Ukraine, and inflation from higher commodity prices.

Among local drivers, China’s insistence on a zero-COVID policy also spurred

selling as the country’s repeated imposition of restrictions means a slower

economic recovery for the region’s largest economy.

“The broader market … they need some more convincing because I think at

the back of their mind, they’ve still got this hesitancy due to the ongoing zero

COVID policy,” said Stephen Innes, managing partner at SPI Asset Management.

Nearly all stock markets in Asia were set for half-yearly losses, although

markets in Indonesia climbed 5.3%, with many coal miners seeing sharp

gains amid soaring energy prices.

For the day, most Asian currencies weakened as even more hawkish signaling

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from the Fed and China’s weaker-than-expected factory and services data kept a

lid on investor sentiment.

The Indonesian rupiah shed 0.3%, and was set to lose 4.3% for the

half year. The Thai baht lost 0.2%, on track to drop 5.4% so far this

year.

Fed Chair Jerome Powell said overnight there was a risk that the planned

policy tightening might slow down the economy too much, as he reaffirmed the

central bank’s commitment to fight inflation.

“The messaging reinforces the notion that the current economic landscape is

operating in a higher rates environment,” analysts at Maybank said in a note.

However, the Singapore dollar edged up 0.2% and was set to be the

best-performing Asian currency in the six-month period, losing just 3%.

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Philippines’ incoming central bank governor said he would consider more

aggressive rate hikes to support the local currency.

The country’s new president, the son and namesake of late dictator Ferdinand

Marcos, also swore in.

The peso rose early in the trading day, but settled about 0.1% lower.

Stocks in the region traded mixed, with Philippine stocks and Thai

stocks shedding 2.3% and 0.8%, respectively, while Chinese and

Malaysian rose 1.1% and 0.3%, respectively.

HIGHLIGHTS:

** Indonesian mining firms Bayan Resources and Astrindo Nusantara

Infrastruktur more than doubled their market capitalisations this

half-year

** International Monetary Fund says it had constructive and productive

discussions with Sri Lankan authorities amid financial crisis, to reach

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agreement on fund facility arrangement in near term

** Japan factory output in May falls 7.2% month-on-month, the sharpest

monthly drop since May 2020, well below expectations

Asia stock indexes and currencies at

0732 GMT

COUNTRY FX RIC FX FX YTD INDEX STOCKS STOCKS

DAILY % % DAILY YTD %

%

Japan +0.42 -15.39 -1.54 -8.33

China +0.07 -5.08 1.10 -6.63

India +0.04 -5.83 0.02 -8.94

Indonesia -0.31 -4.33 -0.21 5.26

Malaysia -0.15 -5.46 0.31 -7.11

Philippines -0.09 -7.27 -2.34 -13.58

S.Korea +0.05 -8.44 -1.91 -21.66

Singapore +0.20 -3.00 -0.67 -0.32

Taiwan -0.15 -6.85 -2.72 -18.62

Thailand -0.18 -5.42 -0.81 -5.08

(Reporting by Harshita Swaminathan; Editing by Sherry Jacob-Phillips)

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