May 15, 2018 / 5:47 AM / 2 months ago

Asian currencies fall as rising U.S. bond yields support the dollar

(Reuters) - Asian currencies weakened on Tuesday with the South Korean won and Indonesian rupiah falling the most, as easing trade tensions helped shore up the dollar and push up U.S. bond yields.

FILE PHOTO: A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File Photo

The dollar index against a basket of six major currencies edged up 0.2 percent to 92.792 at 0502 GMT.

The U.S. 10-year bond yield had inched higher on Monday, as optimism over President Donald Trump’s pledge to aid China’s ZTE Corp helped assuage U.S.-China trade frictions.

“It appears that momentum for earnest trade negotiations has been unlocked and we think this could be a positive for global market sentiment and the U.S. dollar for now,” said Mizuho Bank in a note.

Indonesia’s rupiah weakened to 14,030 a dollar. Its loss for the day increased slightly after Southeast Asia’s largest economy reported that in April it had its biggest trade deficit in four years.

The data showed a trade deficit of $1.62 billion in April which conflicted with most estimates, including a Reuters poll, and was a departure from a $1.12 billion surplus in March.

The rupiah remains perched around two-and-a-half-year lows.

Thailand’s baht fell 0.4 percent. The central bank will leave interest rates at a near record low on Wednesday, a Reuters poll showed.

The Philippine peso fell 0.4 percent to 52.677 to the dollar, its lowest level in nearly 12 years.

The South Korean won declined 0.7 percent, ahead of revised April trade data later in the day.

CHINESE YUAN

The Chinese yuan slipped to 6.349 a dollar, following a slew of economic data, which showed China’s industrial output grew 7 percent in April, quicker than expected, while retail sales missed expectations.

Moody’s maintained a cautionary tone on the recent trade discussion between the world’s two largest economics, saying China is “unlikely to meet U.S. demands on bilateral trade”.

Caution was echoed by the U.S. Ambassador to China Terry Branstad, who says the countries are still “very far apart” on resolving trade frictions.

INDIA’S RUPEE

The Indian rupee inched down to its lowest in over three months, following data that showed annual retail and wholesale inflation accelerated in April, with many economists expecting a more hawkish central bank at June’s policy meeting.

Annual retail inflation accelerated in April to 4.58 percent, after easing for three straight months, mainly driven by faster increases in food and fuel prices.

The biggest risk Asia’s third-largest economy faces is rising crude oil prices. India meets 80 percent of its oil needs from imports.

An increase in oil prices of $10 a barrel could quicken inflation by about 1 percentage point and reduce economic growth by 0.2 to 0.3 percentage points, a senior finance ministry official told Reuters.

Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Richard Borsuk

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