January 9, 2017 / 6:22 AM / in 6 months

EM ASIA FX-Asia FX slips after solid U.S. jobs bolster Fed rate hike bets

6 Min Read

* Asian currencies retreat in wake of U.S. jobs data
    * S.Korean won falls 1.2 pct in onshore trade
    * Offshore Chinese yuan falters after last week's rally

    SINGAPORE, Jan 9 (Reuters) - Emerging Asian currencies fell
on Monday after data showing a rebound in U.S. wage growth
buttressed expectations for more Federal Reserve interest rate
hikes in 2017.
    Although U.S. employment increased less than expected in
December, U.S. jobs data on Friday showed a rebound in wages,
pointing to sustained labour market momentum.  
    In addition, Chicago Federal Reserve President Charles Evans
said on Friday the Fed could raise interest rates three times
this year, faster than he had expected just a few months ago and
in line with the majority of his colleagues. 
    The comments from Evans reinforced the view that the Fed,
which raised interests rates in December for the first time in a
year, could step up the pace of its rate hikes if the incoming
Trump administration unleashed fiscal stimulus. 
    "With expectations of more rate hikes on the horizon, we
believe the dollar will resume its upward trend versus EM Asian
currencies in the coming weeks," Qi Gao, FX strategist for
Scotiabank in Singapore, said in a research note.
    Market participants, however, should watch out for the risk
of dollar pull-backs, Gao wrote, adding that such moves could be
triggered by weak U.S. economic data or if any Fed officials
were to raise concerns over dollar strength.        
    The South Korean won fell about 1.2 percent
against the dollar in onshore trade on Monday. Most other
emerging Asian currencies also fell, including the Indian rupee
, which shed 0.4 percent.
    The offshore Chinese yuan slipped 0.5 percent,
giving back some of the sharp gains made last week, when it
gained about 1.8 percent in a record weekly rise. The onshore
yuan was steady on the day.
    The spurt in CNH last week was driven predominantly by a
jump in yuan borrowing costs offshore and tighter liquidity,
which helped trigger the unwinding of bullish bets on the
dollar. 
    "Despite some semblance of order emerging, we should expect
volatility to remain high," Stephen Innes, senior trader for FX
broker OANDA said in a note. 
    "I also expect that the underlying yuan depreciation
pressures should return as fundamental reasons that are driving
depreciation, such as capital outflows and concerns on Trump's
China policies...haven't changed," Innes wrote.
    Emerging Asian currencies have retreated broadly over the
past couple of months as U.S. bond yields jumped on expectations
that President-elect Donald Trump's proposals for infrastructure
spending and tax cuts will boost U.S. economic growth and
inflation. 
    Worries about Trump's stance on trade have also weighed on
Asian currencies. Trump has vowed to label China a currency
manipulator on his first day in office, and has threatened to
slap huge tariffs on imports of Chinese goods.
       
    CHINA'S FX RESERVES
    China's foreign exchange reserves fell to near six-year lows
in December, but held just above the $3 trillion level, as
authorities stepped in to support the weakening yuan ahead of
Trump's inauguration. 
    While the $3 trillion mark is not seen as a firm "line in
the sand" for Beijing, concerns are swirling in global financial
markets over the speed with which the country is depleting its
ammunition to defend the currency and staunch capital outflows.
        
    CURRENCIES VS U.S. DOLLAR
  Change on the day at   0521 GMT                        
  Currency                Latest bid   Previous  Pct Move
                                            day  
  Japan yen                   117.47     116.91     -0.48
  Sing dlr                    1.4427     1.4396     -0.21
  Taiwan dlr                  32.098     31.993     -0.33
  Korean won                 1207.15    1193.00     -1.17
  Baht                         35.78      35.67     -0.31
  Peso                        49.610     49.520     -0.18
  Rupiah                       13380      13360     -0.15
  Rupee                        68.22      67.96     -0.38
  Ringgit                     4.4750     4.4710     -0.09
  Yuan                        6.9340     6.9330     -0.01
                                                         
  Change so far                                          
 in 2017                                         
  Currency                Latest bid   End prev  Pct Move
                                           year  
  Japan yen                   117.47     117.07     -0.34
  Sing dlr                    1.4427     1.4490     +0.44
  Taiwan dlr                  32.098     32.279     +0.56
  Korean won                 1207.15    1207.70     +0.05
  Baht                         35.78      35.80     +0.06
  Peso                         49.61      49.72     +0.22
  Rupiah                       13380      13470     +0.67
  Rupee                        68.22      67.92     -0.43
  Ringgit                     4.4750     4.4845     +0.21
  Yuan                        6.9340     6.9467     +0.18
 
 (Reporting by Masayuki Kitano; Editing by Jacqueline Wong)

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