Dollar Rally Weakens Asian Currencies Despite Better Data

A continued dollar rally has further weakened Asian currencies despite better than expected domestic data.

The Singapore dollar dropped near a three-year low and the Indian rupee traded at a 1-month low, while the Malaysian ringgit fell to a new four-year low on GDP data.

Among the majors, yen fell to a new seven year low while Sterling dropped to a fresh 14-month low against the dollar.

Analysts said expectations of a stronger retail sales data from the US later in the day has been helping the greenback while the weaker than expected inflation cues from the eurozone and the UK are adding to the sentiment fem Thursday.

Reports of likely postponement of the sales tax hike in Japan have aided the continuation of the yen selloff, which was set off with the stimulus boost announced by the Bank of Japan on 31 October.

In addition, a Bloomberg article showed that markets have started betting for a sooner rate hike by the Federal Reserve than the BoE, with the BoE inflation report suggesting easing price pressures in the UK.

Around the middle of this year, the market positioning was for the BoE to hike before its US counterpart. GBP/USD has fallen to a new 14-month low of 1.5653 on Friday.

The USD/JPY pair at the same time rallied to a new seven year high of 116.40, helped by the 0.5% drop in the yen on Friday.

The US dollar index rose above the 88-mark again after holding below that level in the past four sessions. It is now very close to the four-year high of 88.18 hit on 7 November.

Indian Rupee

USD/INR edged higher to 61.66 from the previous close of 61.60. The pair has been on an upward trend since May this year but has failed to break above the 62.0 mark despite several attempts.

Rupee's rebound from a record low of 68.80 hit in August last year was aided by the hopes of market favouring reforms by the new government under Narendra Modi, but the currency got to a cautious track of correction after the election.

Despite strong dollar rally across the board, the rupee has been able to arrest weakness beyond the 62/dollar mark though the strength of the greenback is weighing on it along with its regional peers.

Data from India on Friday showed that wholesale price-based inflation fell to a record low of 1.77% in October, extending the drop from 6.16% recorded for January.

Easing price pressures have increased expectations of a rate cut by the Reserve Bank of India and the local shares have rallied helped by that.

Singapore Dollar

USD/SGD rose to 1.2972 from Thursday's close of 1.2918 resulting in a 0.4% decline on the day in the Singapore currency. The pair is only five pips away from the 35-month high of 1.2977 touched last week.

The Singapore dollar has been on a downward trend from mid-July, and by Friday, it was down more than 4.3% since then.

Singapore data on Friday showed retail sales grew 5.5% from a year earlier in September, up from 5.4% in August and beating market expectations of 4.1% rise. Analysts were expecting a 1.9% drop month-on-month but the fall was a much softer 0.4%.

Malaysian Ringgit

In the third quarter, the Malaysian economy expanded 5.6% from a year earlier, data showed on Friday. Current account surplus dwindled to 7.6bn ringgit from 16bn ringgit in the second quarter.

It was a significant slowdown from the 6.4% growth in the previous quarter, but the market has been expecting a decline by the same margin, so the impact was limited.

Capital flow data showed that the third quarter saw an outflow of 11bn ringgit compared to the 6.9bn ringgit inflow in the previous quarter.

USD/MYR rallied to as high as 3.3493, its highest since March 2010, and resulting in a 0.37% decline in the ringgit from its Thursday's close.

The Malaysian currency had hit the four-year low last week itself, helped by a 1.66% decline during that week.