Asia’s currencies get hammered after double yuan whammy

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Yuan devaluationAsian currencies suffered big time after after China’s surprise decision to devalue the yuan on August 11, and got a double whammy after Beijing stunned markets by devaluing the currency a second time the day after. The daily fix that sets the value of the Chinese currency against the greenback was lowered to 6.3306 yuan on August 12 from 6.2298 the day earlier. That marks the weakest guidance rate for the currency since October 2012.

What followed was a chain reaction of devaluations across Asia. The Indonesian rupiah led the declines, falling 1.7 per cent against the US dollar to its lowest level since July 1998. The Malaysian ringgit slid 1.4 per cent to its weakest since September 1998, crossing the psychologically important 4-dollar-mark. Thai baht, Singapore dollar, Taiwan dollar and Philippine peso, meanwhile, all touched five-year lows. The Indian rupee fell to a 23-month low of 64.885, before the Reserve Bank of India reportedly intervened to control the fall.

The sell-off in Asian currencies also reflects the market expectations that the respective countries shall respond to the drop in the yuan by weakening their currencies via interest rate cuts. Moreover, the Yuan also acts as a regional anchor, thereby leading other Asian currencies lower along with it. And the magnitude of the sell off is also reflective of the facts that a weaker yuan hurts the export competitiveness of China’s neighbours and erodes China’s purchasing power, potentially reducing imports.

Several central bank officials and finance ministers in the region issued statements regarding the sharp losses in their currencies. The Indonesian central bank said the rupiah depreciation did not reflect economic fundamentals but global sentiment, while the South Korean finance minister said the government was closely monitoring the foreign exchange markets.

With the US Federal Reserve expected to raise interest rates for the first time in nearly a decade this September and weakening economic momentum in the region, it certainly means more downside risk for Asian currencies, say analysts.

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Reading Time: 2 minutes

Asian currencies suffered big time after after China’s surprise decision to devalue the yuan on August 11, and got a double whammy after Beijing stunned markets by devaluing the currency a second time the day after. The daily fix that sets the value of the Chinese currency against the greenback was lowered to 6.3306 yuan on August 12 from 6.2298 the day earlier. That marks the weakest guidance rate for the currency since October 2012.

Reading Time: 2 minutes

Yuan devaluationAsian currencies suffered big time after after China’s surprise decision to devalue the yuan on August 11, and got a double whammy after Beijing stunned markets by devaluing the currency a second time the day after. The daily fix that sets the value of the Chinese currency against the greenback was lowered to 6.3306 yuan on August 12 from 6.2298 the day earlier. That marks the weakest guidance rate for the currency since October 2012.

What followed was a chain reaction of devaluations across Asia. The Indonesian rupiah led the declines, falling 1.7 per cent against the US dollar to its lowest level since July 1998. The Malaysian ringgit slid 1.4 per cent to its weakest since September 1998, crossing the psychologically important 4-dollar-mark. Thai baht, Singapore dollar, Taiwan dollar and Philippine peso, meanwhile, all touched five-year lows. The Indian rupee fell to a 23-month low of 64.885, before the Reserve Bank of India reportedly intervened to control the fall.

The sell-off in Asian currencies also reflects the market expectations that the respective countries shall respond to the drop in the yuan by weakening their currencies via interest rate cuts. Moreover, the Yuan also acts as a regional anchor, thereby leading other Asian currencies lower along with it. And the magnitude of the sell off is also reflective of the facts that a weaker yuan hurts the export competitiveness of China’s neighbours and erodes China’s purchasing power, potentially reducing imports.

Several central bank officials and finance ministers in the region issued statements regarding the sharp losses in their currencies. The Indonesian central bank said the rupiah depreciation did not reflect economic fundamentals but global sentiment, while the South Korean finance minister said the government was closely monitoring the foreign exchange markets.

With the US Federal Reserve expected to raise interest rates for the first time in nearly a decade this September and weakening economic momentum in the region, it certainly means more downside risk for Asian currencies, say analysts.

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