September 28, 2017 / 7:01 AM / 9 months ago

EM ASIA FX-Asian currencies fall as dollar, U.S. yields rise on Trump's tax proposal

 (Adds text, updates prices)
    By Patturaja  Murugaboopathy 
    Sept 28 (Reuters) - Asian currencies took a beating on
Thursday after U.S. President Donald Trump's proposal for a tax
overhaul lifted the dollar and U.S. bond yields, reducing the
appeal of regional currencies.
    The dollar index, which measures the greenback
against a basket of six major currencies, climbed to a one-month
high of 93.575, while the U.S. 10-year Treasury yield
 rose to its highest since July 13 at 2.3425 percent.
    "By and large Asian currencies are falling on a much
stronger dollar trend, particularly driven by a sharp rise in
U.S. Treasury yields on the back of Yellen's comments and
growing speculation that the U.S tax reform could be easier to
push through now," said Vishnu Varathan, head of economics and
strategy at Mizuho Bank in Singapore.
    Trump on Wednesday proposed the biggest U.S. tax overhaul in
three decades, offering to cut taxes for most Americans but
prompting criticism that the plan favours the rich and companies
and could add trillions of dollars to the deficit.
    The jump in U.S bond yields reduced the yield margin for
investors buying Asian bonds over U.S. Treasuries.
    Data from central banks showed investors in Asian bonds have
started reducing their holdings as 10-year government bonds of
South Korea, Thailand and Taiwan now offer almost same returns
as U.S. Treasuries of same tenure. 
    The South Korean won, the Thai baht, the
Taiwan dollar and the Indonesian rupiah all
declined about half a percent or more on Thursday.
    Foreign investors also didn't spare equity markets. They
have sold shares worth about $2 billion in Taiwan this month, 
$1 billion each in India and South Korea, and $700 million in
    "We are already seeing equity outflows from Asian equity
markets and this has started to reflect in currencies, as well,"
said Tariq Ali, an investment strategist at Standard Chartered
    "In the case of India and Indonesia, equity market
valuations are expensive, so it's not surprising."
    Technical indicators too showed bearish signs for regional
currencies. The South Korean won, the Indonesian rupiah and the
Indian rupee broke supports at their 200-day simple
moving averages (SMAs) this week, while the Singapore dollar
breached its support at 50-day SMA.
    "Finally, emerging-market volatility is picking up from a
very low level after declining through the year. We believe the
stronger USD has been the main trigger," said Standard
Chartered's Ali. 
    The rupiah touched its lowest since December while bonds
declined sharply.
    Analysts said the high-yielding currency has come under
pressure after two successive rate cuts. 
    "Bank Indonesia cut (rates) aggressively in two months in a
row and that left real yields pretty low" said Mizuho's Vishnu.
    Indonesia's central bank is "in principle" consistently
maintaining the rupiah exchange rate to reflect fundamentals via
market intervention, a senior official said on Thursday.

    The following table shows rates for Asian currencies against
the dollar at 0610 GMT.
 CURRENCIES VS                                  
 U.S. DOLLAR                           
   Change on the                                
  day at   0610                        
  Currency          Latest   Previous   Pct Move
                       bid        day  
  Japan yen        113.04      112.81      -0.20
  Sing dlr         1.3632      1.3593      -0.29
  Taiwan dlr       30.432      30.303      -0.42
  Korean won       1149        1140.7      -0.76
  Baht             33.460        33.3      -0.48
  Peso             51.120       51.02      -0.20
  Rupiah           13550        13435      -0.85
  Rupee            65.77        65.71      -0.10
  Ringgit          4.235         4.22      -0.35
  Yuan             6.669       6.6425      -0.40
  Change so far                                 
 in 2017                               
  Currency         Latest   End 2016    Pct Move
  Japan yen        113.04      117.07      +3.57
  Sing dlr         1.3632      1.4490      +6.29
  Taiwan dlr       30.432      32.279      +6.07
  Korean won       1149       1207.70      +5.07
  Baht             33.460       35.80      +6.99
  Peso             51.120       49.72      -2.74
  Rupiah           13550        13470      -0.59
  Rupee            65.773       67.92      +3.27
  Ringgit          4.235       4.4845      +5.89
  Yuan             6.669       6.9467      +4.16

 (Reporting by Patturaja Murugaboopathy and Additional Reporting
by Gaurav Dogra in Bengaluru; Editing by Subhranshu Sahu)
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