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Asian currencies weakened sharply Monday as the U.S. Dollar rallied after U.S. President Donald Trump slapped tariffs on several countries over the weekend.
The dollar index — which measures the value of the greenback against several major global currencies — spiked 1.11% to 109.58.
The Chinese offshore yuan dropped 0.36% to 7.347 against the greenback, following Trump’s imposition of a 10% duty on Chinese exports to the U.S. Major investment banks have forecast the yuan to weaken to an average 7.51 per dollar by the end of this year due to Trump tariffs.
Trump also imposed 25% tariffs on Canada and Mexico, two of the its top trading partners. Canada and Mexico immediately vowed retaliatory measures, while China is looking to challenge the duties at the World Trade Organization.
Chinese markets are on a seven-day break until Tuesday for the Lunar New Year holiday.
India, which on Saturday announced its aim to cut its fiscal deficit to 4.4% of the GDP in its budget, saw the rupee fall to a record low of 87.101 against the dollar, weakening 0.66%. Calls for a rate cut have been growing as the country’s growth has been slowing. Lower rates tend to weaken currencies.
The South Korean won depreciated 0.83% to 1,467.65.
The Japanese yen weakened 0.19% to 155.47 against the dollar. It’s declines was capped by the Bank of Japan’s interest rate stance. BOJ Deputy Governor Ryozo Himino reportedly said last Thursday that the central bank would continue to raise interest rates if the “economy and prices move in line with the bank’s forecasts.”
Japan’s central bank had hiked interest rates by 25 basis points to 0.5% in its January meeting, bringing them to their highest level since 2008.
The Australian dollar defied the broader weakness in Asian currencies, appreciating 1.51% to 0.6117 against the greenback.
“We’re still wrapped with uncertainty, but what we do know is that, when Trump says he’s going to do something, we should take him at his word. And I think that’s why markets are reacting the way that they are this morning,” Ray Attrill, global head of foreign exchange at the National Australia Bank said.
Speaking to CNBC’s “Street Signs Asia” on Monday, Attrill noted that “we’re going to see the Chinese currency moving up,” which would in turn imply “material downside for a lot of the EM (emerging market) currencies.”
“[Growth] downgrades haven’t come through yet, but believe me, they are coming, and that is then going to be the enemy for these sort of pro cyclical, pro growth currencies,” he added.
