Chinese currency yuan weakened to hover around its end-January lows on Monday, after the central bank fixed the softest midpoint against the dollar since 2011 as expectations of a US interest rate hike grow.
The People’s Bank of China set the midpoint rate at 6.5784 per dollar prior to the market open, 0.45 percent weaker than the previous fix of 6.549 and the softest fixing since February 2011.
US Federal Reserve Chair Janet Yellen said on Friday a rate increase in the coming months “would be appropriate,” if the economy and labour market continued to improve. Most emerging Asian currencies lost ground on Monday after Yellen’s comments.
The dollar index, which traces the greenback against a basket of major currencies, rose 0.4 per cent on Friday and extended its gains, standing at 95.904 by midday in Asian trade.
The South Korean won underperformed regional currencies on speculation that some components of foreign equity funds may move to China if benchmark provider MSCI includes Chinese stocks in its emerging market index.
The Malaysian ringgit fell on equity outflows, while the Indonesian rupiah slipped with most Indonesian government bond prices lower.
“There will be some catch-up for USD/Asia after the USD lift in New York on Friday,” said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore. Ji, however, saw limited losses in emerging Asian currencies, saying Yellen was no more hawkish than her colleagues. “It is hard to envisage such ‘urgency’ in resuming the tightening path would end this year with only one rate hike. A year of halves for the USD should warrant a more bearish outlook for the regional currencies than previously pencilled.”
The MSCI will decide in mid-June whether to add Chinese shares to its emerging market benchmark, a move which could direct large amount of capital into China’s stock markets.