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Currencies Across Asia Fall Sharply Against U.S. Dollar
Yuan’s depreciation is largest since January; Singapore central bank eases policy to spur growth
By GREGOR STUART HUNTER in Hong Kong and EWEN CHEW in Singapore
Updated April 14, 2016 5:49 a.m. ET
3 COMMENTS
Currencies across Asia including the Chinese yuan dropped sharply against the U.S. dollar Thursday, with markets caught off-guard as the Singapore central bank restrained the appreciation of its currency to stoke growth.
The yuan saw its biggest one-day depreciation since January, and the Singapore dollar fell by the most within a day this year. Meanwhile, the South Korean won weakened after the ruling party lost its parliamentary majority.
Asian currencies had firmed up against the greenback in recent weeks, partly thanks to the Federal Reserve having signaled it would raise interest rates at a slower rate this year than previously expected. Economic policy makers from the Group of 20 nations had pledged at a meeting in February to avoid sparking a currency war through competitive devaluation.
A weakening of the yuan against the U.S. dollar in its daily fix weighed on currencies across the region, after a 0.46% depreciation—the biggest since January.
The region’s currency markets had started the day on the back foot as traders assessed first the impact of South Korea’s elections, followed by Singapore’s surprise easing.
Movements of the yuan fix, which determines the levels at which the currency can trade inside mainland China, have recently been more determined by market forces. Today’s depreciation reflects strength in the U.S. dollar on Wednesday.
Thursday’s yuan depreciation was the biggest since Jan. 7, when markets had speculated that moves to weaken the yuan could trigger a global currency war. Competitive currency devaluation hasn’t materialized among major economies since then, but other central banks in smaller countries in Asia are loosening policy in the meantime.
The Monetary Authority of Singapore became the latest to surprise markets by easing its policy stance as it warned of threats to growth. The Singapore dollar fell as much as 1.1% to 1.3654 against the U.S. dollar, the biggest intraday move since mid-December.
The Korean won weakened 0.7% to 1153.305 to the dollar after South Korea’s ruling party lost its parliamentary majority, raising doubts about the government’s ability to push ahead with economic reforms.
“The Singapore economy is projected to expand at a more modest pace in 2016 than envisaged in the October policy review,” the Monetary Authority of Singapore said in a statement. The central bank also forecast a decline of between 0% and 1% this year in headline consumer price inflation, which has been falling every month since November 2014 as a result of measures intended to cool the economy. It warned, too, that any pickup this year in core inflation, which strips out the cost of private road transport and accommodation, may be less than previously anticipated.
Singapore’s central bank flattened the expected appreciation of the Singapore dollar, setting the rate of appreciation of its nominal effective exchange rate to zero. Previously, it had been set to gradually strengthen to avoid importing inflation from overseas. The Singapore dollar trades in a band against a basket of currencies.
In easing, Singapore’s central bank was following others around Asia. India, New Zealand and Indonesia have all cut interest rates in the past six weeks, and Japan implemented negative interest rates on some deposits earlier this year.
The International Monetary Fund lowered its global growth forecasts for the year ahead to 3.2% this week, down 0.2 percentage point from projections issued in January. The IMF raised its forecast for emerging and developing Asia to 6.4% by 0.1 percentage point, lifted by an improved forecast for Chinese growth, upgraded by 0.2 percentage point to 6.5%.
The Korean won’s decline Thursday—following a 7.5% rise against the dollar in March—came after the conservative Saenuri Party lost its parliamentary majority and its chairman resigned. That’s a setback for President Park Geun-hye’s efforts to push economic deregulation and overhaul the labor market.
“There will be more policy gridlock,” said James Kim of the Asan Institute for Policy Studies, a Seoul think tank.
Singapore also reported preliminary estimates of GDP growth for Q1 of 1.8% on year earlier today. The estimate beat expectations of a 1.7% increase by economists polled by The Wall Street Journal. Some said that the data pointed to Singapore’s central bank looking ahead to risks to future growth.
“Risks to growth are intensifying and it’s only right for them to take a proactive approach to monetary policy at this point,” said Irvin Seah, senior economist at DBS Bank, which had correctly anticipated the Singapore policy change.
Though Singapore is less exposed to the slowing Chinese economy than countries like Taiwan and South Korea, it may be feeling the effects of China’s slowdown spreading throughout Asia, he added. “If the region slows down, we could be getting the impact in Singapore because of the small and open nature of the economy.”
The Indonesian rupiah, Malaysian ringgit, Philippine peso, and Thai baht all fell against the dollar on Thursday as well. The U.S. dollar index, which tracks the greenback’s strength against a basket of six developed market currencies, rose 0.2% to 94.93.
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