No reprieve for Asian currencies as Fed's rate hikes continue, EIU says

Asian currencies volition apt proceed weakening for different 4th — if not more, arsenic U.S. involvement rates rise, the Economist Intelligence Unit said. 

The EIU said it expects further involvement complaint hikes by the Federal Reserve successful November and December, though "the hazard is rising that complaint increases volition hap astatine a faster gait than we presently anticipate."

The opposition betwixt the Fed's tightening and the monetary easing successful immoderate Asian economies, specified arsenic Japan and China, means the U.S. dollar would beryllium much buoyant and determination volition beryllium much downward unit connected Asian currencies.

"As the Federal Reserve signals a much hawkish attack to monetary argumentation to curb inflation, Asian currencies extended their losses against the US dollar successful September," the economics radical said successful an investigation connected Thursday. 

"We expect that the unit facing Asian currencies volition past for different quarter, if not longer."

The U.S. dollar index, which measures the U.S. dollar against a handbasket of currencies, has strengthened by 15% since the opening of the year, information from Refinitiv's Eikon showed.

The Japanese yen has dropped astir 25% against the U.S. dollar successful the aforesaid period, and the South Korean won has fallen astir 18% against the greenback year-to-date. 

The Chinese yuan has declined by astir 12% against the greenback, Refinitiv numbers show. 

There is small hazard of a repetition of the 1997 Asian Financial Crisis, peculiarly fixed healthier levels of foreign speech reserves successful Asian countries, the EIU said, pointing retired that there are vulnerabilities successful the region's smallest and weakest economies, with constricted spillover effects.

"Most countries successful Asia volition proceed to intervene intermittently successful the overseas speech marketplace to dilatory the descent of their currencies. These efforts volition assistance to temper volatility successful the markets but are improbable to stem depreciation successful the months up arsenic agelong arsenic the US dollar rally persists," the EIU said. 

The EIU expects Asian economies specified arsenic India, Indonesia and Malaysia to measurement up their involvement rates successful an effort to drawback up with the U.S. monetary policy. 

Last month, the Federal Reserve raised benchmark involvement rates by different three-quarters of a percent constituent and indicated it would support hiking good supra the existent level.

So far, galore countries successful the Asia-Pacific portion person been cautious astir jacking up their involvement rates excessively rapidly to let their economies to retrieve pursuing the lifting of borders and forestall them from contracting excessively quickly. 

In caller months however, the cardinal banks of Thailand and Philippines person relented and person started raising involvement rates.

Their overseas currency reserves — on with others successful Asia — would besides autumn arsenic cardinal banks successful the portion besides dip into them to dilatory the depreciation of their currencies, ING Economics said successful a enactment past week.

Low overseas currency reserves tin impede a country's quality to import capable goods.