Asian currencies tepid as local COVID-19 cases weigh; won rallies

July 15, 2021: Most Asian currencies traded in a tight range on Thursday as worries over local COVID-19 outbreaks countered support from relatively resilient China data and the U.S. Federal Reserve Chair Jerome Powell sticking to a dovish tone.

South Korea's won was an outlier, jumping 0.5% after the country's central bank singalled it was considering hiking rates. The Philippine peso slid 0.3%, while the Indonesian rupiah, Singapore's dollar and the Malaysian ringgit traded flat to higher. Second-quarter economic growth in the region's top trade partner China slowed, but its monthly indicators were encouraging and expectations are growing that Beijing will roll out more support measures to support the recovery.

In Indonesia, authorities braced themselves for daily cases to hit the 60,000 marks as the Delta variant spread faster than their expectations, whereas in Singapore, a new COVID-19 cluster was detected and Thailand logged record deaths from the virus.

"The focus this morning is squarely on the data deluge out of China but Asia's emerging market currencies remain under stress as the COVID-19 situation is worsening despite lockdowns," Mizuho analysts wrote in a client note.

The dollar and Treasury yields eased slightly overnight after Powell in testimony to Congress said the U.S. economy was "still a ways off" from levels the central bank wanted to see before tapering its monetary support.

Most Asian shares advanced as rate hike fears ebbed, but Singapore's stock index dipped 0.6%. The cluster related to a lounge caused the city-state to report its highest number of coronavirus cases in 10 months as restrictions there were being gradually eased.

The won saw its best day in nearly three-weeks after Bank of Korea stood pat on rates but said it would review monetary policy if needed from the next meeting.

"A policy rate hike is likely in October 2021, the first in our view to hike in the region," analysts at TD Securities said, expecting South Korea's strong trade performance to keep growth buoyant.

The Philippine peso continued its poor run as it fell for a second session and was on track to end lower for seventh week.

Reuters