ASIAN CURRENCIES were battered on Monday with the Indian rupee touching a record low as the ongoing crisis in Turkey spilled over to emerging markets and investors flocked to safe-haven assets.
The Turkish lira tumbled to a record low, weakening as much as 13.34%, over concerns about Turkish President Tayyip Erdogan’s rigid control over the economy and a worsening diplomatic rift with the United States.
“If investors continue to be concerned about the events in Turkey, and they likely will be, we could see more pain in store when it comes to risk appetite in the week ahead,” Jameel Ahmad, global head of currency strategy & market research at FXTM wrote in a note. Investors fear the sell-off in the lira could have a ripple effect in global financial markets with the euro, the South African rand and Mexico’s peso already on the receiving end from Turkey’s crisis.
Mr. Erdogan, who has called himself the “enemy of interest rates,” wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing.
Worries about the exposure of European banks to crisis-hit Turkey prompted investors to bid up safe havens like the US dollar and Japanese yen. The dollar index added 0.07% at 96.423 while the yen strengthened 0.58% by 0535 GMT.
“Today’s market is a little bit more about recalibrating the investment agenda. Investors want to reduce their position. Kind of like, once bitten, twice shy,” said Taye Shim, head of research at Jakarta-based Mirae Asset Sekuritas.
The Philippine peso opened 0.08% weaker at P53.18 to the greenback and traded P53.18-53.375 before closing 0.44% weaker at P53.37.
The Indonesian rupiah plunged nearly one percent on to its weakest since October 2015, after data showed on Friday the country’s current account deficit, a major concern for global emerging market investors, swelled in the second quarter to the largest in nearly four years.
Indonesia’s central bank is intervening to defend the rupiah, a senior official said on Monday.
“The bank intervening in both the FX and bond market can only smooth excessive movement in the rupiah not change its direction,” said Gao Qi, FX Strategist (EM Asia) at Scotiabank.
China’s yuan slid 0.5%, in line with regional peers.
“A worsening yuan is like pouring oil on a fire,” said Mirae’s Mr. Shim.
The People’s Bank of China lowered the yuan midpoint rate to 6.8629 per dollar, its weakest level since May 31, 2017, which was 0.3% softer than Friday’s fix of 6.8395.
Last week, the yuan fell for the ninth straight week, the longest weekly losing streak since 1994. It has fallen about 9% against the dollar since the end of March.
South Korea’s won and the Taiwan dollar weakened 0.48% and 0.32% respectively.
India’s rupee, which has been the region’s worst performing currency so far this year, weakened more than one percent hours before consumer inflation data for July was due. A Reuters poll found that July inflation was expected to be 4.51% versus a five-month high of 5.0% hit in June.
Inflation remains a central concern for India, with rising crude oil prices adding to imported inflation. Moreover, recent erratic Indian monsoons have dimmed the outlook for winter-harvested crops in a largely agriculture-reliant economy. — Reuters