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EM ASIA FX-Asian currencies fall, yuan hits 8-year low after Fed's signal
December 15, 2016 / 6:04 AM / a year ago

EM ASIA FX-Asian currencies fall, yuan hits 8-year low after Fed's signal

* Chinese yuan hits lowest since 2008
    * Singapore dollar hits lowest level since January
    * Asian currencies retreat broadly vs dollar

 (Updates prices, adds comments)
    By Masayuki Kitano
    SINGAPORE, Dec 15 (Reuters) - Emerging Asian currencies slid
against the dollar on Thursday, with the Chinese yuan hitting an
eight-year low after the U.S. Federal Reserve raised interest
rates and signalled a faster pace of rate increases in 2017.
    The Singapore dollar fell to 1.4436 per U.S. dollar
earlier on Thursday, its weakest since January. Traders later
sold the U.S. dollar to book profits from the greenback's rally,
helping the Singapore currency come off lows. 
    Chinese state-owned banks were seen selling dollars in the
onshore foreign exchange market on Thursday, two traders said,
on a day when the yuan fell to an eight-year low.
 
    Chinese state-owned banks have offered dollar liquidity
regularly over the past two months in what traders believe is
part of efforts to support the yuan from falling too fast. 
    The outcome of the Fed's policy meeting reinforces the
outlook for further dollar strength, said Heng Koon How, senior
FX investment strategist for Credit Suisse in Singapore.
    "We continue to stay negative on euro, negative on Chinese
yuan, and mostly negative on Asian currencies," Heng said.
    The Fed coming across as being slightly more hawkish than
before and rises in U.S. Treasury yields are key negatives for
the yuan and Asian currencies, he added.     
    The Fed's 25 basis-point interest rate increase on Wednesday
was widely anticipated by financial markets though they appeared
to have been caught out by the central bank signal of three
hikes in 2017, up from around two flagged at its September
policy meeting. 
    The relatively hawkish Fed stance came as U.S.
president-elect Donald Trump takes over with promises to boost
growth through tax cuts, spending and deregulation.
    After the Fed's decision, the U.S. benchmark 10-year
Treasury yield touched its highest level in more than two years,
while the 2-year Treasury yield scaled a seven-year peak.
 
    Such rises in U.S. Treasury yields can erode the attraction
of higher-yielding emerging market assets and lead to capital
outflows from emerging markets.
    
    SINGAPORE DOLLAR
    Khoon Goh, head of Asia research for ANZ, said in a research
note that the Singapore dollar may have more scope to fall,
given that its nominal effective exchange rate (S$NEER) is still
estimated to be above the lower edge of the central bank's
policy band.
    According to ANZ's estimates, the S$NEER is now 0.4 percent
below the mid-point of the policy band, Goh said. Most analysts
estimate that the policy band likely allows the S$NEER to move 2
percent from the mid-point in either direction. 
    "There is still room within the policy band to accommodate
further Singapore dollar weakness before the lower bound is
reached," Goh said.
    "With further policy tightening in the U.S. to come and
Singapore's growth and inflation outlook subdued, we see the
S$NEER testing the lower bound at some stage," Goh added. 
    
    KOREAN WON
    The won slipped 0.8 percent against the dollar, having
fallen more than 1 percent earlier on Thursday. 
    The won showed limited reaction after South Korea's central
bank kept interest rates unchanged on Thursday as expected.
    The Bank of Korea held its key policy rate steady at a
record low of 1.25 percent, as authorities sit tight in the face
of a political crisis at home and the Fed's signal to raise
rates at a faster-than-expected pace. 
    
    THAI BAHT
    The baht slipped to a two-week low of 35.716 per
U.S. dollar.
    Thailand's finance minister said he was not worried about
fund outflows after in the wake of the Fed hike, and the country
has no need to follow suit. 
    Thailand's central bank is widely expected to leave its
policy rate unchanged at 1.50 percent at a Dec. 21 meeting. The
rate has been steady since April 2015. 

    CURRENCIES VS U.S. DOLLAR  
  Change on the day at   0549 GMT                       
  Currency                Latest bid   Previous      Pct
                                            day     Move
  Japan yen                   117.54     117.05    -0.42
  Sing dlr                    1.4374     1.4370    -0.03
  Taiwan dlr                  31.893     31.803    -0.28
  Korean won                 1179.17    1169.70    -0.80
  Baht                         35.71      35.58    -0.36
  Peso                        49.900     49.730    -0.34
  Rupiah                       13364      13292    -0.54
  Rupee                        67.77      67.44    -0.49
  Ringgit                     4.4620     4.4440    -0.40
  Yuan                        6.9346     6.9070    -0.40
                                                        
  Change so far                                         
 in 2016                                         
  Currency                Latest bid   End prev      Pct
                                           year     Move
  Japan yen                   117.54     120.30    +2.35
  Sing dlr                    1.4374     1.4177    -1.37
  Taiwan dlr                  31.893     33.066    +3.68
  Korean won                 1179.17    1172.50    -0.57
  Baht                         35.71      36.00    +0.81
  Peso                         49.90      47.06    -5.69
  Rupiah                       13364      13785    +3.15
  Rupee                        67.77      66.15    -2.39
  Ringgit                     4.4620     4.2935    -3.78
  Yuan                        6.9346     6.4936    -6.36
 
 (Reporting by Masayuki Kitano; Additional reporting by IFR
Markets' Catherine Tan, Winni Zhou and John Ruwith in SHANGHAI,
Michelle Chen in HONG KONG; Editing by Simon Cameron-Moore &
Shri Navaratnam)

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