Dollar surge sinks rupee, other emerging currencies

A moneychanger in Manila. The peso fell to its lowest level against the dollar in eight years yesterday.
A moneychanger in Manila. The peso fell to its lowest level against the dollar in eight years yesterday.PHOTO: AGENCE FRANCE-PRESSE

As US currency rises on hopes of Trump's fiscal plans, it pounds weaker currencies to record lows

LONDON • The Indian rupee, offshore Chinese yuan, Vietnam dong and Turkish lira all crashed to fresh record lows yesterday against the rallying American dollar, while other Asian currencies dropped to levels last seen in the wake of the global financial crisis.

State banks or foreign exchange authorities in China, India, Indonesia and the Philippines were suspected of intervening to slow the slide in their currencies, traders said.

Emerging market assets have been pounded since Mr Donald Trump's victory in the United States presidential election as his expansionary fiscal policies are expected to fuel inflation and prompt the US Federal Reserve to tighten more aggressively than previously thought, spurring capital outflows.

Besides the impact of Mr Trump's policies, there were a number of political events looming in Europe, making investors wary of deploying funds into riskier assets.

The US dollar surged to a near 14-year high yesterday, clocking up a string of milestones against other top currencies and clobbering the more vulnerable emerging currencies to fresh record lows.

Stronger data from the world's biggest economy underpinned the greenback's gains, which were further amplified by thinner volumes as US traders stayed away for the Thanksgiving holiday.

The dollar pushed its way past more of last year's peaks against the euro to hit US$1.0550 (S$1.5101) in early European action, with only last March's high of US$1.0457 standing in the way of a drive towards parity.

The yen skidded 0.4 per cent to an eight-month low.

Worries about India's demonetisation drive and rising odds for a US interest rate increase pushed the Indian rupee to a record low of 68.86 per dollar, at which level the central bank was suspected of intervening.

The rupee has weakened around 3 per cent so far this month on expectations of a hit to economic growth in the wake of the government's demonetisation moves.

The Hong Kong-traded offshore yuan, used frequently by foreigners, weakened past the 6.96 level for the first time since it started trading overseas in late 2010. The Chinese yuan also hit an 81/2-year low after the People's Bank of China set its daily guidance rate at its weakest since June 2008.

The Philippine peso hit levels not seen since November 2008 and other Asian currencies hit multi-month troughs. The Malaysian ringgit was at a near 14-month low and the Indonesian rupiah hit a near six-month low.

Turkey unexpectedly raised lending rates for the first time in almost three years yesterday after the lira's plunge to a record low and its impact on inflation trumped political demands for lower borrowing costs.

Commodity-related currencies fared a little better, helped by robust commodity prices on expectations of higher demand.

The Bloomberg-JPMorgan Asia Dollar Index reached 103.29, the lowest level since March 2009, as futures traders see a 100 per cent chance that the Fed will raise rates at its final meeting of the year from Dec 13 to 14.

That is up from about 70 per cent at the end of last month.

The Fed saw a strengthening case to raise interest rates as the labour market tightened, with some saying a hike should happen next month, according to minutes of their gathering this month released on Wednesday.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on November 25, 2016, with the headline 'Dollar surge sinks emerging markets'. Print Edition | Subscribe