As of Thursday afternoon in Hong Kong, the greenback had strengthened markedly against a range of currencies in the Asia-Pacific region, including Australia, China and South Korea.
The rising dollar partly reflects the increasing attractiveness of US assets such as the Treasury, whose yields have climbed this year. But it also signals a growing caution among investors about riskier assets. Stocks have tumbled in many parts of the world as concerns mount about slowing global growth and rapid inflation, as well as the risk that coercive action by the Federal Reserve could plunge the US economy into recession.
“Currencies are being whipped out of delicate sentiment,” said Wai Ho Leong, a strategist at Modular Asset Management, a Singapore-based hedge-fund manager.
Sliding currencies are a particular headache for emerging markets, with major commodity importers and large piles of hard currency debt to service. They also present a challenge for central banks, which have to balance discouraging capital flight with continued growth, which typically demands lower interest rates.
Data released Wednesday showed US consumer prices rose 8.3% faster than expected in April from a year earlier – a reading that spurred on the Federal Reserve to raise at least half a percentage point. The Federal Reserve is likely to remain under pressure. one time.
The WSJ dollar index, which measures the US currency against a basket of 16 others, rose 0.22% to 96.73. On Wednesday, it fell to its highest level since March 2020, a month in which the emergence of the pandemic caused a stampede for the dollar.
The ICE US Dollar Index, another gauge of the dollar’s strength, which measures it against six major developed-market currencies, including the euro and yen, rose 0.4% to 104.277, placing it at its highest closing level in nearly 20 years. .
“There is a broad sell-off, and people are looking to buy the dollar because it is a safe haven,” said Alvin Tan, head of Asia forex strategy at RBC Capital Markets in Singapore.
Emerging market currencies such as the offshore yuan, the Brazilian real and the South African rand were among those losing the most ground, Mr Tan said.
In Hong Kong, the city’s de facto central bank defended its long-standing peg against the greenback, saying it sold US dollars for the first time in more than three years.
Meanwhile, China’s offshore yuan weakened nearly 0.6% to over 6.8 yuan per dollar, according to FactSet, a level it has not dropped since September 2020. After months of relative stability, the Chinese currency has fallen sharply in both onshore and offshore markets since mid-April.
Higher-than-expected US inflation readings, reports of high Covid-19 community transmission in Shanghai and little remarks from China’s central bank about prioritizing economic growth weakened the latest yuan, Mr Leong said in the modular. The currencies of China’s close trading partners also weakened, he said.
The Australian dollar fell nearly 0.7% against the dollar, with one Australian dollar buying around 68.9 US cents. Australia is a major exporter of iron ore and other raw materials to China and elsewhere.
In South Korea, which has been exposed to Chinese demand, winnings weakened nearly 0.8% to trade at more than 1,289 per dollar by midday, beyond the weakest close hit during the early stages of the pandemic. FactSet data shows the currency has been held to its weakest close since July 2009, during the end of the global financial crisis.
Thanks to corporate champions such as Samsung Electronics Co., SK Hynix Inc. and Hyundai Motor Co., the North Asian country is a major exporter of high-technology goods such as semiconductors, smartphones and cars.
Analysts say this makes it vulnerable to a global slowdown in growth and a change in sentiment about the tech sector. In addition, the country is a major energy importer, while tensions with neighboring North Korea are running high.
On Thursday, the country’s tech-heavy Kospi Composite index fell 1.6%, reducing its year-on-year loss to 14%. Foreign investors sold a net 9.12 trillion won South Korean stock in the first quarter, official data show, which is equivalent to about $7.15 billion at current exchange rates.
Elsewhere in the region, the Indian rupee weakened slightly to around 77.49 per dollar, beating earlier losses.
Mr Tan at RBC said the market was not focusing on domestic drivers for individual countries, and the recent interest rate hikes in India and Malaysia have not had much impact on their currencies. The Reserve Bank of India surprised the markets by raising rates in an unscheduled policy meeting last week.
—Dave Sebastian contributed to this article.