Asian currencies fell on Wednesday as traders bid up the dollar in expectation Federal Reserve Chairman Alan Greenspan would give an upbeat assessment of the US economic outlook later in the day. The South Korean won fell as much as 0.4 percent to 1,044.2 per dollar before ending local trading at 1,042.4. The Taiwan dollar weakened as much as a quarter of a percent to 32.02 per US dollar and ended local trade at 32.
The Thai baht weakened as much as half a percent to 42.15 per dollar and stayed close to those levels as investors failed to find anything surprising in Bank of Thailand's decision to raise rates to 2.75 percent from 2.50 percent in a bid to check inflation and keep local deposit rates competitive.
Greenspan is expected to repeat remarks in Congressional testimony due to start at 1400 GMT that the US economy is coping well with high oil prices and will expand at a moderate pace.
Some analysts said a buoyant outlook from Greenspan on the US economy, contrasting with weak economic data from Europe and Japan, would lead more regional investors to dollar-denominated assets and drag local currencies lower in the process.
That view was supported by data from China on Wednesday showing its economy expanded in the second quarter a stronger-than-expected 9.5 percent from a year earlier. The growth reflected the strength of the US economy, China's biggest export market, ANZ Bank said in a report.
"The data confirm our view that US demand remains strong, and will continue to underpin global growth," said Amy Auster, senior economist at ANZ in Melbourne.
She added that a rising interest rate differential between the dollar and Asian currencies has led to the dollar's renewed strength and caused a flight of capital out of Asia back to dollar assets.
A Reuters quarterly poll released on Tuesday showed economists expect the benchmark US Fed funds rate to rise to 4.25 percent by the end of the first quarter of 2006 from its current 3.25 percent while the European Central Bank rate was seen unchanged at 2 percent until the second half of 2006. The Fed has already raised the Fed funds rate in quarter percentage point steps nine times since June 2004.
The yen, where three-month money market rates yield just 0.001 percent, weakened about a half a percent from late Asian trading on Tuesday to 113.18 per dollar, a 14-month low. Traders said the dollar's strength against the yen is spilling over to other Asian currencies.
"Most traders are paying attention to the dollar-yen," said Gary Huang, a currency trader at Union Bank of Taiwan in Taipei.
"The dollar is going up against the yen and that's pushing it up against the Taiwan dollar," he said.
A currency dealer in Bangkok said the dollar's broad-based strength is likely to weaken the baht further despite the Bank of Thailand's rate rise on Wednesday and its suggestion rates were likely to go higher.
The Singapore dollar outperformed its regional peers, trading little changed near 1.6900 per dollar, supported by government measures unveiled on Tuesday aimed at boosting the local property market.
Comments
Comments are closed.