Asia FX falls as the dollar stays high

Asian currencies fell on Monday as the dollar climbed to 20-year highs amid expectations of more tightening of monetary policy and the euro reached fresh lows over worries about a deteriorating energy crisis in Europe.

One of Asia’s poorest performing currencies was China’s yuan, which fell 0.4 percent to reach its lowest level in more than two years against the dollar at around 6.9. According to Caixin data released on Monday, strong consumer spending throughout the month helped the country’s services industry grow more than forecast in August.

But compared to July, the sector’s growth rate decreased a little. According to information made public this week, China’s industrial industry contracted in August despite mounting pressure from COVID-19 lockdowns and an energy shortfall.

The South Korean won dropped 0.6 percent and the Singapore dollar dipped 0.2 percent. Given that China serves as the region’s primary trading hub, changes in the yuan have an impact on the majority of Asian currencies.

Dollar index futures also increased as the better-than-expected nonfarm payrolls report gave the Fed greater room to continue rising interest rates quickly. The dollar index increased by 0.5 percent to a fresh 20-year high of over 110.

The likelihood of a 75 basis point increase by the U.S. central bank later this month is at 57 percent, according to traders. High-yielding Asian currencies become less appealing as U.S. interest rates rise because the difference between risk-free and risky debt is reduced. In addition, they lessen the availability of dollars, which hurts Asian foreign investment.