Morning Bid: Asia’s FX doom loops


Japanese yen and US dollar banknotes are seen in this illustrative image taken on September 23, 2022. REUTERS/Florence Lo/Illustration

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Sep 26 (Reuters) – A look at the day ahead in Asian markets by Jamie McGeever

Expect an ugly open in Asian markets on Monday as investors seek to protect themselves from the fallout of the widespread selling that ravaged stocks, bonds and currencies on Friday.

The historic defeat in UK bonds and sterling was the focus on Friday, but at the heart of gloomy world markets is the Fed’s drive to raise rates far more than most people expected and the impact that will have on global has interest.

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And the dollar.

The dollar’s “wrecking ball” status is being felt in Asia, where multiple currencies have fallen to multi-year or record lows and central banks have stepped in to try to stem the rot.

On Friday, the Indian rupee hit a record low, the Indonesian rupiah and Chinese yuan fell to their weakest levels since mid-2020, the Thai baht fell to a 16-year low and the South Korean won hit a 13-year low.

diagram

Falling currencies increase inflationary pressures, forcing policymakers to tighten, tightening financial conditions and depressing demand. Central banks will have a hard time breaking this vicious circle.

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Its pool of foreign exchange reserves for intervention purposes is also limited – even the Bank of Japan will be aware that its $1.3 trillion stash won’t last forever if it follows last week’s historic dollar selling intervention often enough.

Speaking of doom loops, when Asian central banks sell portions of their US Treasury holdings to prop up their domestic currencies, US yields rise, Treasuries become more attractive, investors jump in and the dollar strengthens.

Asia’s economic and corporate calendar on Monday is light.

A slew of Japanese economic data, including retail sales and consumer confidence, and China’s September PMIs will provide insight into the health of the region’s two largest economies later in the week.

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The Indian central bank also announced its latest interest rate decision on Friday.

Key developments that could give markets more direction on Monday:

German ifo (September)

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Reporting by Jamie NcGeever in Orlando, Florida; Editing by Alistair Bell

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.



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