Hawkish Fed, weak China PMI hurt Asia FX; rupiah dips before election ruling

Aug 21 2014, 14:01 IST
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SummaryChina factory survey raises concern on China growth.

Most emerging Asian currencies eased on Thursday after minutes of the U.S. Federal Reserve's July meeting sounded slightly hawkish and a survey increased concerns about slowing of the Chinese economy.

The Indonesian rupiah slipped ahead of the Constitutional Court's ruling over the last month presidential election result later in the day.

China's yuan snapped a six-day winning streak as a preliminary private survey showed growth in the factory sector in the world's second-largest economy slowed to a three-month low in August due to moderating output and new orders.

The Thai baht and the Malaysian ringgit slid as investors covered short positions in the dollar, which hit an 11-month high against a basket of six major currencies.

The minutes of the Fed's July 29-30 meeting showed policymakers debated whether interest rates should be raised earlier, given a surprisingly strong jobs market recovery, even though most officials wanted further evidence before changing their views on a timing of interest rate hikes.

That increased caution ahead of Fed Chair Janet Yellen's speech on Friday at a gathering of central bankers in Jackson Hole, Wyoming.

Still, most emerging Asian currencies pared earlier losses as investors remain interested in the region due to stronger economic fundamentals and higher yields.

"We don't see broad dollar strength against regional currencies on the very modest narrowing in yield differential," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.

Emerging Asian currencies have been benefiting as investors escaped from Europe where both growth and inflation faltered and came to Asia, traders and analysts have said.

BNP Paribas said it sees a renewal of interest in emerging market equities.

It said EPFR data suggested such a trend with emerging market equities having attracted $13 billion of inflows since July while developed markets have seen outflows of $24 billion over the same period.

"If the macro environment remains benign, there is scope for a long running underweight in EM vs DM to be scaled back," BNP Paribas said in a client note, adding that support for Asia currencies can be sustained. The offshore yuan,

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