Stronger dollar subdues Asian currencies amid talk of faster US tapering

Bengaluru — Asian currencies were pinned down by a stronger dollar after the Federal Reserve signalled a faster bond tapering, with the Indonesian rupiah and the Philippine peso trading flat ahead of their respective country’s central bank meetings.

Singapore’s dollar and the Thai baht eased 0.2% each as the dollar held steady after the US central bank said it would end pandemic-era bond purchases in March, followed by three possible rate hikes in 2022.

While the prospect of US monetary tightening could add downward pressure on emerging-market currencies, Asian central banks are unlikely to closely follow in the Fed’s footsteps due to a delayed economic recovery in the region. Bank Indonesia [BI], which meets later in the day, is expected to start hiking rates only by the third quarter of 2022. The rupiah hovered around the 14,320/$ mark, edging closer to the level it was trading at before the Omicron coronavirus variant was detected.

“Less severe deterioration of fiscal deficit, thanks to commodity [exports] led by coal, means that BI need not face the sharp trade-off of compensatory tightening in interest of macro stability,” Mizuho analysts wrote in a note. “Nevertheless, more hawkish Fed tides will inadvertently knock up against rupiah stability.”

Jakarta shares reversed course to fall 0.7% after Indonesia reported its first case of the Omicron strain. All other Asian stock indexes rose as the Fed sounded upbeat on the world’s largest economy overnight. It said the US economy was making rapid progress towards maximum employment and that it no longer needed increasing amounts of policy.

The South Korean won was an outlier with 0.3% gains, rebounding from the previous day’s loses. The won fell on Wednesday after South Korea warned it may reinstate stricter social-distancing curbs due to surging Covid-19 cases. The peso was stubbornly flat, while Philippine stocks jumped 0.6%. Bangko Sentral ng Pilipinas is likely to leave rates unchanged at its monetary policy meeting later.

Telecom operators led gains on the Manila index after Philippine senators passed a bill to allow full foreign ownership of public services like telecommunications, airlines and domestic shipping firms. Meanwhile, Singapore equities were held back by a decline in property firms as the city-state introduced curbs to cool its residential markets late on Wednesday, including raising stamp duties and tightening loan limits. 

Reuters