Asian FX stumbles on US debt ceiling talks, China data

Asian currencies struggled to advance against the US dollar on Wednesday (17 May), as softer Chinese economic data and the talks over the US debt ceiling dampened investor sentiment and stoked concerns of a global slowdown.

China's new home prices rose for the fourth straight month in April, but at a slower pace, official data revealed, adding to concerns over the pace of recovery in a sector crucial to China's economic health. It followed downbeat data on Tuesday that showed property investment and sales were falling sharply.

"Underwhelming China activity data in April validate our repeated warnings of overstated re-opening optimism, and resultant blind spots to China's structural and geo-political challenges," said Vishnu Varathan, head of economics and strategy at Mizuho Bank.

The Shanghai SE Composite Index <.SSEC> and Hong Kong benchmark index <.HSI> dropped 0.5% and 1% respectively, while the yuan <CNY=CFXS> lost 0.3%.

The currencies of China's major trading partners also took a hit. The Malaysian ringgit <MYR=> slipped 0.6%, falling to an over two-month low, and the Indonesian rupiah <IDR=> dipped 0.4%.

In the US, President Joe Biden and top congressional Republican Kevin McCarthy edged closer to a deal to avoid a looming debt default.

Regional stock markets were largely mixed, however.

"Overall, sentiment seems to be lacking strong directional steer currently, which could (be due) to the anxiety over the US debt ceiling talks and next week's PCE data," said Robert Carnell, regional head of research, Asia Pacific at ING.

Equities in Taiwan <.TWII>, South Korea <.KS11>, Malaysia <.KLSE> and the Philippines <.PSI> gained between 0.3% and 1.6%, while India <.NSEI> and Singapore <.STI> declined 0.3% and 1.1% respectively.

The drop in Singapore to a near two-month low was sparked by data showing the country's non-oil domestic exports fell 9.8% year-over-year in April, weighed down by declines in both electronic and non-electronic products.

The lacklustre external demand conditions imply non-oil domestic exports momentum could remain mired in a year-on-year contraction until the third quarter, said Selena Ling, OCBC's chief economist.

Meanwhile, the ambiguity over who will be Thailand's next prime minister persists, despite the two main opposition parties agreeing to form a ruling coalition, due to possible opposition from a military-appointed Senate, the party's position on a royal insult law and a complaint against its leader.

The Thai baht <THB=TH>, which has shed 1.3% since last week, lost 0.6% while stocks in the country <.SETI> fell 1.1%.