OCBC strategists Sim Moh Siong and Christopher Wong report that Asian FX traded broadly softer as higher Oil prices and rising US Treasury yields hurt risk sentiment, with Indonesian Rupiah (IDR) underperforming and Philippine Peso (PHP), Indian Rupee (INR) and Thai Baht (THB) also weaker. Renminbi (RMB) momentum faded as People’s Bank of China’s (PBoC) stronger fix trend stalled, while holiday closures in China, South Korea and Taiwan are expected to thin liquidity and potentially increase volatility.

Regional currencies under pressure

“Asian FX traded broadly softer as higher oil prices and US Treasury yields weighed on risk sentiment. IDR underperformed, while PHP, INR and THB also weakened.”

“A firmer USD added to the pressure, while RMB gains lost momentum after the recent strengthening trend in the PBoC fix was halted. On the other hand, USD/SGD held steady but near recent highs.”

“Market liquidity is expected to drop to razor-thin today, with China, South Korea and Taiwan closed for the Mid-Autumn/Chuseok holidays. And next week, China golden-week holidays start on Thu.”

“Near term, elevated oil prices and US Treasury yields may continue to weigh on Asian FX, in differentiated magnitude while thinner liquidity could see moves turn choppier into the weekend.”