Asian currencies slip on trade war fears, investors run for cover

Asian currencies slip on trade war fears, investors run for cover

SINGAPORE,. Emerging Asian currencies slipped broadly today as fears of fallout on the region from a China-US trade row sparked a flight to safe haven assets from regional currencies.

US President Donald Trump yesterday threatened additional tariffs on Chinese goods in an escalating tit-for-tat trade war between the world’s two biggest economies.

Trump warned that Washington would impose a 10 per cent tariff on US$200 billion (RM800 billion) of Chinese goods after Beijing’s decision to raise tariffs on US$50 billion in US goods, which was in retaliation for US tariffs announced on Friday.

The Japanese yen, considered a safe haven currency in times of market turmoil, climbed 0.7 per cent against the US dollar to 109.795 yen, its strongest in a week.

Gold also benefitted with spot prices rising 0.45 per cent to US$1,283.62 an ounce by 0336 GMT.

Meanwhile, the US dollar index, measuring it against a basket of six major peers, wilted as much as 0.3 per cent to 94.534 today.

“Predictably, investors are running for cover under the haven umbrellas as global equity indices are crumbling under the weight of an escalating trade war,” Stephen Innes, head of trading Apac at Oanda, wrote in a note.

China’s yuan and the Taiwan dollar weakened, trading for the first time this week. China and Taiwan’s markets were closed yesterday for a public holiday while Indonesian financial markets remained shut today.

The yuan’s 0.17 per cent drop was surpassed by a 0.41 per cent slide in the Taiwan dollar, the region’s worst performing currency today. The currency fell to its weakest since mid-November in intraday trade.

The South Korean won slipped 0.03 per cent while the Singapore dollar was 0.08 percent lower.

Sino-US trade tensions soured sentiment in India as well, with the rupee losing 0.16 per cent.

Policy reviews

The central banks of Thailand and the Philippines are scheduled to hold meetings to decide monetary policy tomorrow. While the Thai benchmark rate is expected to be left unchanged, a slim majority of economists believe the Philippine central bank will raise interest rates for the second consecutive meeting.

Thailand’s baht weakened again, following a drop of more than 1 per cent intra-day yesterday when a combination of comments by the Thai finance minister and capital outflow concerns weighed heavily on the currency.

The minister said yesterday that a weaker baht would help the country and that he saw no reason for Thailand to raise interest rates.

Thailand’s 1-day repo rate has been maintained at 1.5 per cent for more than three years.

Meanwhile, opinions on the Philippine central bank, Bangko Sentral ng Pilipinas (BSP), potentially raising rates are sharply divided, with the weak peso likely to be the factor that will tilt the scale.

“The negative feedback loop, where a continuously weak PHP widens trade deficit which then further suppresses the currency, could ultimately threaten the inflation target via higher import prices,” Zhu Huani, a market economist at Mizuho Bank, Ltd wrote in a note.

The Philippine peso held steady today, but remained not far from a 12-year low that it touched yesterday.

— Reuters