Singdollar, ringgit tumble as US dollar soars on Yellen rate comments

Federal Reserve Chair Janet told lawmakers that the Fed is close to boosting borrowing costs as the economy continues to gain traction.
Federal Reserve Chair Janet told lawmakers that the Fed is close to boosting borrowing costs as the economy continues to gain traction. PHOTO: REUTERS

TOKYO (BLOOMBERG, REUTERS) - The US dollar vaulted to 13 1/2-year highs against a basket of major currencies after Federal Reserve Chair Janet Yellen signaled an interest-rate hike could be imminent.

The Singapore currency was down 0.8 per cent to US$0.7008 to the US dollar as of 11:28am, extending its fall against the greenback since the Nov 8 US election to 2.5 per cent.

The ringgit weakened 0.75 per cent to US$0.2268 to the US currency, making it a slide of nearly 5 per cent since the US vote.

The won and the rupiah slipped 0.5 per cent, while the Thai baht and the Philippine peso lost 0.4 per cent.

Other high-yielding currencies also tumbled, with the Canadian, New Zealand and Australian dollars each off one per cent.

The yen weakened 0.3 per cent to 110.46 per dollar and is on track for its second weekly retreat of more than 3 per cent.

The euro slumped to US$1.0620, a low last seen almost a year ago.

The dollar's strength leaves Asian stocks vulnerable to potential rotation out of emerging markets to the United States.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.3 per cent in early trade to hover just above its four-month low touched earlier in the week. It looks set to log its fourth straight week of losses.

The dollar's rise, however, was a boon for Japan's exporter-driven Nikkei average as the yen weakened further, rising 0.9 per cent to a 10-month high.

In her first public statement since the US election, Yellen told lawmakers that the Fed is close to boosting borrowing costs as the economy continues to gain traction. The comments torpedoed US treasuries, while American financial stocks pushed their rally since Donald Trump's presidential victory back above 10 per cent on Thursday.

"The fact that she didn't push back against market expectations for a December hike is perhaps the most significant takeaway," said Jack Spitz, managing director for foreign exchange at National Bank of Canada in Toronto, referring to Fed Chair Yellen. "The dollar is higher as a result."

Odds on the Fed raising the benchmark rate are now at 96 per cent, up from 80 per cent a week ago and less than 65 per cent a month ago, according to futures trading tracked by Bloomberg.

"Right now it is a dollar-dominated story," Philip Borkin, a senior economist in Auckland at ANZ Bank New Zealand Ltd., said in a client note. "But beyond a Fed rate hike next month, many questions remain over the path of policy going forward - for both fiscal and monetary."

On Wall Street overnight, the benchmark S&P 500 index rose 0.5 per cent to within a hair of its record high as bank stocks were boosted by bets on higher interest rates and consumer discretionary stocks were helped by favourable economic data and earnings.

US consumer prices posted their biggest increase in six months, while housing starts surged to a 9-year high and jobless claims fell to the lowest level since November 1973.

All these data fit nicely into the current market's theme that US inflation is likely to accelerate under Trump administration's policies such as tax cuts, increased fiscal spending and more trade protection for domestic industries.

The 10-year US Treasuries yield rose to 2.326 per cent, its highest since January. The two-year US Treasuries yield rose to a 10 1/2-month high of 1.058 per cent.

"I think the rises in US yields have been driven by excessive optimism in the stock market on Trump's economic policies," said Shuji Shirota, head of macro economic strategy at HSBC in Tokyo.

The dollar's index against a basket of six major currencies rose above its "double top" touched in March and December of 2015. The index now stands at its highest level since 2003. "Double top" is a technical analysis term describing a currency (or other liquid asset) rising to a high, falling, and then rising again to the same level. Breaking the double top is often seen as a bullish sign by technical analysts.

Gold slumped to 5 1/2-month low of US$1,211.6 per ounce and oil prices, which have been supported by hopes the Organization of the Petroleum Exporting Countries would reach an agreement to cap production at its meeting in Vienna on Nov. 30, were hit by the dollar's strength. US crude futures slipped to US$45.05 per barrel from Thursday's two-week high of US$46.58.

With additional information from the Straits Times