The Singapore dollar hit a five-week low on Tuesday as a surprising economic contraction revived expectations that the city-state’s central bank may ease monetary policy.
South Korea’s won touched a two-year trough, leading losses emerging Asian currencies, as investors shifted their focus to guessing when the U.S. Federal Reserve will start raising interest rates.
The Singapore dollar lost as much as 0.4 percent to 1.3622 per U.S. dollar, its weakest since June 8, after disappointing second-quarter growth data.
Gross domestic product shrank 4.6 percent in the second quarter from the previous three months on an annualised and seasonally adjusted basis, government data showed. Sluggish global demand hurt the manufacturing sector of the trade-dependent economy.
The figures spurred views that the Monetary Authority of Singapore (MAS) may ease policy, analysts said.
“Markets will have to start pricing in a risk of an easing by MAS into October,” said Sean Yokota, head of Asia strategy for Scandinavian bank SEB in Singapore.
SEB’s three-month target of the Singapore dollar is 1.4000, Yokota added.
In a Reuters poll on June 26, economists had expected the Singapore’s central bank to keep monetary policy steady at its next scheduled policy review in October, seeing a recovery in core inflation later this year.
At its April meeting, the MAS held off from further stimulus after a surprise easing in January.
The won lost 0.9 percent to 1,140.7 per dollar, its weakest since July 2013, as offshore funds sold the currency amid overall strength in the U.S. dollar.
The South Korean currency recovered some of earlier losses as local exporters bought it for settlements on dips.