Plunging US yields ease pressure on Asia’s troubled currencies; CNY unlikely to depreciate past 7 vs USD for now, says DBS Group Research

Plunging US yields have eased some pressure on Asia’s beleaguered currencies; US 10-year bond yield fell to 2.32 percent for the first time since November 2017, reflecting mounting concerns about the outlook, according to the latest report from DBS Group Research.

The largest component of the USD Index (DXY), the euro, will be weighed down by increased representation of the far-right parties at the European Parliament elections. The major gains made by the Brexit Party have increased doubts over whether Prime Minister Theresa May’s successor will have better luck in delivering Brexit. Odds remain for the DXY to end up consolidating into a 97.0-98.3 range, the report added.

There is less fear that the Chinese yuan will depreciate past 7 against the USD, for now. China fixed the USD/CNY central parity just below 6.90 through last week, and its officials warned of huge losses for those who sought to speculate against the Chinese yuan.

"A more stable yuan will be welcome by the export-led Emerging Asian countries. South Korea has warned markets of the won’s excessive depreciation," DBS further commented in the report.

The won has become East Asia’s worst performer with a 6.1 percent depreciation so far this year. The Taiwan dollar was a distant second with a 2.5 percent depreciation. In Southeast Asia, Indonesia affirmed its presence in the markets to stabilize the rupiah. Meanwhile, USD/IDR aborted its push to trade 14500 and has since retreated to 14385.