Central banks in Asia are tapping into their stockpiles to boost their weakening currencies against the rising US dollar after years of building their foreign-exchange reserves.
Thai reserves fell to $221.4bn as of June 17, according to data released late last week. It was the lowest in more than two years. The Indonesian stash is at the smallest since November 2020, according to monthly figures. Reserves in South Korea and India are at their lowest level in more than a year. Malaysia's stockpile has fallen the most since 2015.
Some countries would have used their reserves to stabilize their currencies when moves were excessive, said Rajeev De Mello, a global macro portfolio manager at GAMA Asset Management in Geneva. They know that they can't reverse their weakness against the USD, but they can smooth the declines. Since the Asian crisis in 1997, central banks have been accumulating dollars to help defend their currencies during periods of wild market swings.
Central banks have reversed the buying this year, as the Federal Reserve boosts the US dollar. Thailand and Indonesia pledged to reduce volatility in their currencies. The Bangko Sentral ng Pilipinas said it is letting the market determine the peso's value against the dollar and is only intervening to curb volatility.
There is little reprieve for high-yielding emerging-Asia currencies. They may continue to reel on their deteriorating external finances and the risk-off sentiment spurred by the Fed's tightening moves, according to strategists at Goldman Sachs Group Inc. The US central bank has signaled a big hike in July, with traders pricing a 75 basis-point increase.
The Philippine peso has slumped to its lowest level since 2005, while the India rupee fell to a new record low last week, while regional currencies are hovering at multi-year lows.
Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc, said that central banks in Asia tend to lean against the wind using FX interventions to smooth exchange-rate adjustments. A trend reversal requires a broader pullback in the US dollar that may only begin to start, once investors can make out more clearly the end of the Fed tightening cycle. If you're too old for an internship, try a returnship instead.