Asian currencies firm after Fed minutes, US$ flat at S$1.3846

SINGAPORE — Asian currencies are holding firm against the greenback on Thursday (May 25) after the minutes of the United States Federal Reserve’s last meeting showed the central bank’s policymakers favouring a gradual approach to interest rate hikes.

The Singapore dollar fluctuated in a narrow range after official data showed Singapore’s economy performed better than earlier estimated in the first quarter, boosted by solid growth in manufacturing. Late in Asia, the Singapore dollar was flat at S$1.3846 per US dollar after trading in a range of S$1.3823 to S$1.3856, Bloomberg data showed.

Singapore’s Ministry of Trade and Industry said it expected the economy to grow more than 2 per cent this year on improving overseas demand, but it warned of risks to the outlook from tightening financial conditions in China, the city-state’s largest export destination. Singapore has been among a number of export-reliant economies in Asia to benefit from a general rise in global demand from late last year, enjoying strong sales of its tech products.

Meanwhile, the Chinese yuan hit two-month highs on state-driven support, a day after Moody’s Investor Services downgraded China’s debt ratings. The yuan rose about 0.3 per cent to 6.8689 after Chinese state-owned banks sold US dollars on the onshore foreign exchange market, five traders said, in what was seen as a show of strength by authorities. The yuan had seen weakness in the previous session after Moody’s unexpectedly downgraded China’s long-term local and foreign currency issuer ratings, citing expectations that China’s financial strength would dwindle as growth slowed and borrowing increased.

Other Asian currencies drew support from the minutes of the US Fed’s May 2-3 meeting showing policymakers agreeing to hold off from raising interest rates until it was clear a recent US economic slowdown was temporary, although most said a hike was coming soon. The minutes also showed that policymakers favoured a gradual reduction in the Fed’s massive balance sheet.

The view on short-term interest rates, which the minutes said was “generally” shared by the nine officials who have a vote on policy this year, casts some doubt on Wall Street bets for a hike at the Fed policy meeting over June 13-14. The US dollar went on the back foot as a result and Treasury yields fell.

“Emerging market currencies in general floated higher in reaction to a weakened US dollar overnight and this should portend a heavier tone for US-Asia intraday,” OCBC currency economist Emmanuel Ng said in a note. He said that net portfolio inflows supported of a range of Asian currencies, including the Korean won, the Taiwan dollar, the Indian rupee and the Thai baht. AGENCIES