Asia’s emerging market currencies fell on Friday, and were set to record weekly losses as the global growth outlook worsened after China’s dismal economic growth data and as inflation worries persist.
Regional currencies seemed to shrug off weakness in the US dollar, which dipped after two Federal Reserve policymakers said they favoured a smaller rate rise than the 100 basis points that investors were betting on.
China’s gross domestic product slowed sharply in the second quarter, highlighting the colossal toll on activity from widespread COVID-19 lockdowns.
China’s yuan hit a two-month low, while stocks dropped to a month-low as homebuyers’ threats to stop mortgage payments on unfinished apartments dented sentiment, despite Beijing’s assurance to solve the crisis.
Thailand’s baht and Taiwanese dollar declined between 0.2 percent and 0.5 percent, respectively. South Korea’s won, the region’s worst performing currency this year, dropped 0.9 percent to hit levels not seen since 2009.
“The inability of Asian FX to rally on US dollar weakness like the DM (developed market) space overnight suggests that more downside lies ahead, especially if strong retail sales in the US tonight put a 1.0 percent Fed hike back on the agenda,” said Jeffrey Halley, senior market analyst for Asia Pacific at OANDA.
US retail sales data, due later in the day, is likely to provide a glimpse of the extent to which inflation has peaked ahead of key Federal Reserve meeting later this month.
Heightened concerns over economic growth have contributed to outflows from riskier Asian assets, despite central banks in the region taking tightening measures to curb broad inflationary pressures and tackle steep currency depreciation.
On the other hand, expectations that the Fed would hike rates aggressively drove the dollar to a 20-year peak this week.
