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Asian FX in cautious mood with Fed meeting in sight


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Asian currencies started the week in a

cautious mood, with lingering concerns about a global economic

slowdown ahead of a U.S. Federal Reserve meeting this week

sapping risk sentiment.

South Korea’s won and Indonesia’s rupiah

edged up 0.3% and 0.2%, respectively, buoyed by a weaker dollar

and relative yuan stability. Thailand’s baht

slipped 0.1% and the Singapore dollar was flat.

Shares in Singapore rose as much as 0.9% to hit their

highest since June 9, before key inflation data later in the

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day. The city-state’s core consumer price index is expected to

have jumped 4.2% in June, according to a Reuters estimate.

The Fed’s two-day meeting, that concludes on Wednesday, will

be critical in determining the policy tightening path for

regional central banks. Markets are priced for a 75-basis-point

(bp) rate hike, with about a 9% chance of a 100 bp hike.

Asian central banks have come under excessive pressure to

normalize pandemic-era policy rates, stoked by heightened

inflation and weakening local currencies. Widening rate

differentials have also contributed to further capital outflows,

thus exacerbating these concerns.

“So long as the Fed maintains its aggressively hawkish path,

financial turbulence in asset markets, especially for central

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banks that are deemed behind the curve, remains a risks,” said

Vishnu Varathan, head of economics and strategy at Mizuho Bank

in Singapore.

Central banks in Indonesia and Thailand are among those in

the region that have yet to begin their own hiking cycles. Bank

of Thailand said on Friday they would gradually raise interest

rates to curb higher inflation, while Bank Indonesia stood pat

on rates at its meeting last week.

On Monday, Philippine stocks dropped as much as 1.6%

to hit its lowest in a week, after a conglomerate owned by a

close associate of former President Rodrigo Duterte said it

received a notice of declaration of default from lenders,

sending shares in related companies sharply lower.

Over the week, South Korea and Taiwan will both report their

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second quarter preliminary gross domestic product figures.

Meanwhile, the Financial Times reported that China has

issued stark private warnings to the Biden administration about

a possible trip to Taiwan in August by U.S. House of

Representatives Speaker Nancy Pelosi.

Stocks were down 0.1%, while the Taiwan dollar

traded largely unchanged.

HIGHLIGHTS

** China Evergrande CEO, CFO step down after probe

into property services unit

** China plans to set up real estate fund worth up to $44

billion – REDD

** Indonesia considering scrapping domestic sales rule for

palm oil exports

** Thai PM survives 4th no-confidence vote, last big test

before polls

Asia stock indexes and currencies at 0350 GMT

COUNTRY FX RIC FX FX YTD INDEX STOCK STOCKS

DAILY % S YTD %

% DAILY

%

Japan -0.11 -15.51 -0.75 -3.77

China -0.06 -5.94 -0.71 -10.80

India -0.01 -6.92 0.00 -3.66

Indonesia +0.17 -4.94 -0.25 4.38

Malaysia -0.09 -6.51 -0.03 -6.52

Philippines -0.20 -9.30 -1.39 -13.29

S.Korea +0.31 -9.18 0.52 -19.21

Singapore +0.01 -2.77 0.43 2.28

Taiwan +0.03 -7.42 -0.15 -18.07

Thailand -0.08 -9.09 0.17 -6.17

(Reporting by Harish Sridharan in Bengaluru; Editing by

Jacqueline Wong)

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