Money flows where yields are highest, and right now that's America
On a Friday in early April, the financial currents flowing out of Washington quietly overwhelmed the usual logic of currency markets across Asia. Even as the U.S. dollar posted its worst weekly performance of the year, elevated Treasury yields drew capital away from emerging-market bonds and currencies, leaving the Indian rupee and Thai baht weakened — a reminder that in interconnected markets, the direction of one instrument does not always predict the fate of another. Meanwhile, in Malaysia, a sweeping telecom merger between Axiata and Telenor offered a counterpoint: a story of consolidation and optimism lifting shares even as broader forces pressed down on the region.
- U.S. Treasury yields stayed stubbornly high even as the dollar fell, creating a paradox that drained capital from Asian emerging markets and left currencies like the Indian rupee down more than 2% for the week.
- Thailand's baht slipped half a percent as its central bank warned of slower growth ahead due to a fresh coronavirus wave, even while acknowledging the currency would likely stay volatile.
- India's rupee faced a double blow — a record-low interest rate hold and a large government bond-buying program both weighed on the currency, sending it down half a percent on Friday alone.
- Not all currencies fell: South Korea's won and the Singapore dollar each gained roughly half a percent, illustrating how differently individual economies absorb the same global pressures.
- Malaysia's market surged on the Axiata-Telenor merger news, with Digi.com jumping 20% and Axiata hitting a 13-month high, offering a rare bright spot of corporate optimism in an otherwise cautious week.
- Investors now face a dense week ahead — Q1 GDP from China and Singapore, Indian inflation data, and central bank meetings in Seoul and Singapore — each a potential new variable in an already unsettled regional picture.
Malaysian stocks climbed to near two-week highs on April 9th, carried upward by the announcement of a major telecommunications merger between Axiata Group and Norway's Telenor ASA. The deal, which would combine their Malaysian operations, sent Axiata shares to a 13-month peak and Digi.com surging as much as 20 percent. The broader Malaysian market added half a percent on the day.
Yet the week's larger story was one of currency strain across Asia's emerging markets. The Indian rupee was on course to lose more than 2 percent for the week, while Thailand's baht was headed for a half-percent decline. The paradox at the heart of these moves was striking: the U.S. dollar itself was having its worst week of the year, yet elevated Treasury yields were pulling investment away from Asian bonds and the currencies tied to them.
Not every currency suffered. South Korea's won and the Singapore dollar each posted modest weekly gains, reflecting how differently individual economies respond to the same global forces. Indonesia's rupiah, meanwhile, was set for losses, and its 10-year benchmark yields edged lower alongside India's — signs of shifting investor appetite rather than improving fundamentals.
In Thailand, the central bank reaffirmed its accommodative stance even as it cautioned that economic growth might fall short of earlier forecasts due to a renewed wave of coronavirus infections. Thai stocks gained 0.7 percent on the day, but the baht remained under pressure, with officials conceding that volatility was likely to persist.
India's rupee faced compounding headwinds. Earlier in the week, the central bank had announced a large government bond-buying program and held rates at record lows — measures meant to support growth that also weighed on the currency. The rupee fell half a percent on Friday alone.
The week ahead promised little rest for investors. China and Singapore were due to release first-quarter GDP figures, India would report inflation and industrial output data, and central banks in both Singapore and South Korea had policy meetings scheduled. A Reuters poll suggested Singapore's economy likely contracted slightly in the first quarter — a sobering note on which to close an already complicated week.
On Friday, April 9th, Malaysian stocks climbed to their highest point in nearly two weeks, lifted by news of a sweeping telecommunications merger that would reshape the country's mobile landscape. Axiata Group and Norway's Telenor ASA announced plans to combine their local operations, a deal that sent Axiata shares to a 13-month peak and Digi.com—Telenor's Malaysian arm—surging as much as 20 percent to a 10-month high. The broader Malaysian market rose 0.5 percent on the day, a modest gain that nonetheless reflected investor appetite for the consolidation.
Yet the week's broader story told a more complicated tale. Across Asia's emerging markets, currencies were under siege. The Indian rupee was on track to lose more than 2 percent over the week. Thailand's baht was headed for a half-percent decline. These declines came despite the U.S. dollar itself posting its worst week of the year—a paradox that revealed the true culprit: U.S. Treasury yields, which remained stubbornly elevated even as the greenback weakened. The yield pressure was enough to pull money away from Asia's higher-yielding bonds and the currencies that came with them.
Not all Asian currencies suffered equally. South Korea's won and the Singapore dollar each posted weekly gains of roughly half a percent, buoyed by improving global trade and other regional factors. Indonesia's rupiah, by contrast, was set for losses. The divergence reflected how differently each economy and currency responded to the same global forces—a reminder that emerging markets, despite their shared label, move to different rhythms.
The pressure on yields and currencies came partly from Federal Reserve Chair Jerome Powell's dovish remarks overnight. Powell's comments, made in the context of an unexpected uptick in U.S. jobless claims, had supported Treasury prices and kept yields elevated. That support for Treasuries, paradoxically, made Asian bonds and currencies less attractive by comparison. Indonesian 10-year benchmark yields fell 1.6 basis points to 6.448 percent, while India's 10-year yields dropped 1.8 basis points to 6.013 percent—declines that reflected the broader shift in investor appetite.
In Thailand, the central bank reiterated its accommodative monetary stance on Friday even as the baht weakened. Officials warned that the country might expand less than previously forecast this year due to a fresh wave of coronavirus infections. Thai stocks managed a 0.7 percent gain for the day, but the currency remained under pressure. A central bank official acknowledged that the baht would likely remain volatile despite its recent weakness.
India's rupee faced its own headwinds. The central bank had announced a large government bond-buying program earlier in the week and held rates at record lows—moves designed to support growth but that also weighed on the currency. The rupee fell half a percent on Friday alone and was tracking toward a weekly loss exceeding 2 percent.
Looking ahead, investors were watching a crowded calendar of economic data and policy decisions. China and Singapore were set to release first-quarter GDP figures. India would report inflation and industrial output numbers. Central banks in Singapore and South Korea had policy meetings scheduled. The Monetary Authority of Singapore was widely expected to leave its policy unchanged, and a separate Reuters poll suggested the Singapore economy likely contracted slightly in the first quarter—a sobering backdrop for the week ahead.
Notable Quotes
Federal Reserve Chair Jerome Powell's dovish comments, especially given unexpected rise in weekly jobless claims, supported Treasuries— Venkateswaran Lavanya, Mizuho Bank analyst
With the MAS poised to maintain its zero Singapore dollar nominal effective exchange rate appreciation stance next week, the Singapore dollar is unlikely to gain more ground in the coming week— Prakash Sakpal, ING senior economist for Asia
The Hearth Conversation Another angle on the story
Why did Malaysian stocks jump so sharply when the broader region was under pressure?
The telecom merger was a local story with real magnitude. Combining two major operators creates a dominant player, and investors saw value in that consolidation. It was enough to move the needle on the whole market.
But the rupee and baht were both falling. How do you square that with dollar weakness?
The dollar was weak, yes, but U.S. Treasury yields stayed high. That's the real magnet. When yields in America stay elevated, money flows there instead of to higher-yielding Asian bonds. The currency weakness follows the capital flows.
So the Fed's dovish comments actually hurt Asian currencies?
Counterintuitively, yes. Powell's dovish tone supported Treasury prices, which kept yields elevated. That made U.S. bonds more attractive relative to Asian alternatives, pulling capital out of the region.
Why did some currencies like the won and Singapore dollar hold up?
They benefited from different currents—global trade improving, different economic positioning. Not every currency in Asia responds the same way to the same pressures. It depends on what drives each economy.
What was the central bank doing in Thailand?
They were trying to be accommodative, keeping policy loose to support growth. But they also had to warn that coronavirus was going to slow the economy more than expected. They were caught between supporting growth and managing a weakening currency.
What happens next week?
A lot of economic data—China and Singapore GDP, India's inflation numbers. And policy meetings in Singapore and South Korea. The market will be watching to see if central banks stay loose or start to shift.