Asia pushback grows as Fed hike fears ripple across the region

Policy makers in Asia pushed back against a surging dollar, seeking to stem losses as their currencies teetered on the brink of key levels that may trigger more selling. 

The Bank of Japan is said to have called banks asking for an indicative price at which it could intervene, spurring traders to drive the currency higher. South Korea also ramped up the rhetoric, while China's central bank set the daily reference rate on the yuan at the strongest bias on record. 

Authorities in Asia are squaring off with traders who bet that regional currencies will continue to slide against a dollar driven by aggressive Federal Reserve tightening. But a depleting stock of foreign reserves may limit the ability of central banks to fight against a surging greenback.

"It's really about King dollar – no one can really beat them in tightening and they have the data to support them," said Eddie Cheung, strategist at Credit Agricole CIB in Hong Kong. Policy makers in Asia are "acting to curb excessive volatility in markets as currency losses against the dollar mount."

Traders entered a wave of sell orders on emerging Asian currencies from the get-go yesterday after US inflation data on Tuesday beat estimates to drive Fed hike bets. 

The won slid as much as 1.6% to 1,395.55 per dollar, the biggest drop since June, within minutes of the market's open. The baht plunged as much as 1.3% to 36.739 to the greenback while the Philippine peso, Indonesian rupiah and Malaysian ringgit also declined.

"There's not much really of a story out there other than buying dollar until there's a fundamental change from central banks' policy stance relative to the Fed," said Nick Twidale, chief executive Asia Pacific at foreign-exchange broker FP Markets in Sydney. "It's one-way traffic, it's the only story in town right now."

All options

As the currencies tumbled, authorities in the region quickly stepped in. Japanese Finance Minister Shunichi Suzuki said the government wouldn't rule out options including intervention in foreign exchange markets. 

The Bank of Japan conducted a so-called rate check in the FX market after top currency official Masato Kanda delivered a verbal warning Wednesday morning, a person with direct knowledge of the events said. The BOJ acts as agent for Ministry of Finance in the event of an actual intervention.

The move may be interpreted as enhanced verbal intervention, and helped the yen advance as much as 0.9% against the dollar and away from the 145 level. 

"While the rate check report probably is a precursor to actual intervention, it isn't likely to lead to an immediate action and is just a hearing and an extension of verbal intervention," said Akira Moroga, manager of currency products at Aozora Bank in Tokyo. 

South Korea's Vice Finance Minister Bang Ki-sun also held an internal meeting and asked officials to closely monitor financial markets. But recent moves suggest that intervention by the authorities – verbal or otherwise – has produced limited results.

The yen has hit a successive series of 24-year lows even as Japanese officials repeatedly warned against rapid moves. Similarly, the won has shrugged off jawboning by policy makers to drop to the weakest since 2009.

China moves

The offshore yuan is on track for a seventh month of losses despite a move by officials to stabilise it by allowing banks to hold less foreign currencies in reserve. In contrast, the Indian rupee has rebounded from a record low after central bank chief Shaktikanta Das said the authorities are in the foreign-exchange market almost every day. 

The dollar has gained almost 20% against the yen this year, while also rising nearly 15% versus the won and close to 9% against the yuan. 

"Throughout the history of markets, verbal interventions as well as FX interventions, they've had at best a temporary impact," said Philip McNicholas, Asia sovereign strategist at Robeco Group in Singapore. "The Fed can continue with its hawkish rhetoric and its hawkish moves and the rest of the world is just left to deal with it."