Expectations the Federal Reserve will raise interest rates supported the U.S. dollar
MUMBAI: Most emerging Asian currencies fall as the dollar recovers after capping a fifth straight month of declines in July.
The MSCI EM Asia Index of shares is up for a third day, with bonds in the region mostly higher.
“The USD is bid on profit taking after the recent sharp depreciation,” said Sue Trinh, head of Asia foreign-exchange strategy at RBC Capital Markets in Hong Kong.
“USD/Emerging Market short covering may continue, but is unlikely to run too far ahead of nonfarm payrolls on Friday, which will set the next directional tone for the USD.”
Bloomberg Dollar Spot Index up 0.1%, adding to Tuesday’s 0.2% advance, which came after a 2.6% slide in July.
Among G-10 currencies, the kiwi tumbled more than half a percent after New Zealand’s second-quarter employment fell unexpectedly for the first time since 2015. The yen weakened as global stocks rallied after strong corporate earnings boosted risk sentiment.
CHINA:
Onshore, offshore yuan both drop; Shanghai Composite Index down 0.2%
China’s money-market squeeze is back, with sovereign bonds beginning to feel the heat as the central bank keeps liquidity on a tight leash and concerns grow about a wall of fund maturities this month.
The 10-year bond yield is little changed at 3.64%, hovering near the highest level in 8 weeks as PBOC refrains from boosting liquidity for third day
SOUTH KOREA:
South Korea’s won falls for a second day; 10-year bond yield drops 1bp to 2.25%; KOSPI Index up 0.2% in a third day of gains
“Concerns that the dollar is weakening too much has slowed the dollar’s further losses, and this will support USD/KRW,” Seungji Jeon, an FX analyst at Samsung Futures, writes in note. USD/KRW is likely to trade between 1,118-1,126 while paying attention to Kospi moves.
BofAML says a shift in the U.S. yield curve toward a “bear steepening regime” makes South Korean local bonds attractive.
President Moon Jae-in’s govt will propose raising the top nominal income tax rates for corporations and individuals as part of efforts to redistribute income, according to a finance ministry statement.
INDIA:
Rupee rallies as much as 0.4% to its strongest level since August 2015 ahead of central bank’s rate decision; biggest gainer in Asia FX Wednesday
“There were sudden heavy inflows from a couple of foreign banks and also India’s central bank wasn’t seen buying dollars,” says Mumbai-based Pramod Patil, vice president at United Overseas Bank .
Sovereign bonds little changed ahead of monetary policy panel’s announcement due at 2:30pm local time.
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