Asian FX weaken as yuan breaches 7-per-dlr level; strong dollar weighs

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Asian currencies came under further

pressure on Friday, as the yuan weakened below the threshold of

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7 per dollar, while increased Federal Reserve rate hike

expectations boosted U.S. Treasury yields and kept dollar demand

intact.

The yuan had fallen below 7 per dollar

only twice since the global financial crisis of 2008, and its

crossing of the level could now stoke fear of capital outflows.

But several state media outlets published commentaries that

sought to stabilize market expectations and played down any

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significance of the level.

“We are in a very strong dollar environment, which is very

hard to go against, and so (the People’s Bank of China) won’t be

looking to defend any particular level rigorously…. It’s

really all about managing the pace of the moves.” said Khoon

Goh, head of Asia research at ANZ.

The Taiwanese dollar slipped to its lowest level

since September 2019, while the South Korean won hit

yet another 13-1/2 year low. Thailand’s baht slid to

levels not seen since December 2006.

“So long as (the yuan) remains weak, you’re quite likely to

see Asian underperformance in aggregate,” said Galvin Chia,

emerging markets strategist at NatWest Markets,

He expects the weakness to be centered around such currencies

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as the South Korean won, Taiwan dollar and Malaysian ringgit

trading against the dollar.

Markets in Malaysia were closed for a holiday.

The won, the worst performing emerging-market

currency in Asia this year, fell 0.2% and was on course for its

sixth straight week of losses against the dollar.

Reported dollar-selling activity and verbal warnings from

the country’s foreign exchange authority on Thursday appeared to

provide temporary relief for the won. But analysts have warned

that defending currency levels is very costly and, if

unilateral, unlikely to be effective.

The Japanese yen rose slightly, helped slightly by

hopes of a potential currency intervention.

Shares in Asia were also weaker, with stocks in Indonesia

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leading the fall just a day after hitting record highs.

Equities in Jakarta, Taipei, Seoul and

Bangkok dropped by between 0.4% and 1.5%.

Shares in Shanghai fell more than 1% to their lowest

in six weeks, even as data showed China’s economy had been

surprisingly resilient in August. Faster than expected growth in

factory output and retail sales shored up the recovery from the

effects of COVID.

But in contrast to the upbeat activity data, China’s

property sector contracted further. Home prices, investment and

sales extended losses.

U.S. two-year Treasury yields hit a fresh 15-year

high overnight, after data on retail sales and jobless claims

showed a resilient economy that gives the Federal Reserve ample

room to aggressively hike interest rates next week.

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HIGHLIGHTS

** China’s economy perks up but property crisis worsens

** Taiwanese dollar at lowest level since Sept, 2019

** Yield on Indonesia’s benchmark 10-year note

hits one-week high

** Indonesia books $5.76 bln trade surplus in Aug, above

expectation

Asia stock indexes and currencies at 0355 GMT

COUNTRY FX RIC FX FX YTD INDEX STOCK STOCKS

DAILY % S YTD %

% DAILY

%

Japan +0.09 -19.74 -1.02 -4.17

China -0.21 -9.36 -0.96 -12.93

India -0.14 -6.86 -0.45 2.55

Indonesia -0.22 -4.54 -1.47 9.37

Malaysia – -8.14 – -6.39

Philippines – -11.09 -0.21 -7.87

S.Korea -0.17 -14.85 -0.97 -20.12

Singapore +0.00 -4.24 -0.05 4.57

Taiwan -0.50 -11.50 -0.96 -20.26

Thailand -0.12 -9.72 -0.41 -1.33

(Reporting by Harish Sridharan in Bengaluru; Editing by Bradley

Perrett)