Most Asian currencies fell on Friday after US housing and jobs data reignited worries about the global credit crisis and hit stock markets across the region, but lower oil prices offered some support. The Taiwan dollar fell 0.1 percent to 30.446 per US dollar, its weakest level since July 9, as investors dumped local stocks.
The MSCI index of Asia-Pacific shares outside of Japan dropped almost 2.8 percent, taking its cue from a slide on Wall Street on Thursday after disappointing US jobs and housing reports. A spike in weekly jobless claims and a June decline in existing home sales were sobering reminders of problems plaguing the world's biggest economy.
But analysts said Asian currencies were underpinned by lower oil prices, which edged up to $126 a barrel on Friday but were still $20 below a record high hit this month. The view that US energy demand is waning is keeping a lid on oil prices.
"The inflation outlook is improving as oil prices fall," said Han Sia Yeo, currency strategist at Bank of America. The Malaysian ringgit fell a fifth of a percent to 3.26 per dollar, extending its losses from Thursday after the central bank has expressed wariness about raising interest rates.
Seven out of 12 economists polled by Reuters expected the central bank to raise interest rates for the first time in over two years to contain inflation, which jumped in June to a 27-year high of 7.7 percent.
Analysts at J.P. Morgan expect a 25 basis point rise, even after central bank chief Zeti Akhtar Aziz said on Thursday that the authority would consider all risks to the inflationary outlook before deciding whether to raise interest rates.
"While this does not rule out an interest rate hike, it suggests the Bank will not respond mechanically to the headline rise in CPI inflation," Claudio Piron and Yen Ping Ho said in a note. The South Korean won eased to 1,009 per dollar after second quarter GDP growth proved stronger than expected, with the downside limited by suspected dollar-selling intervention by the authorities.
South Korea's economy grew a seasonally adjusted 0.8 percent in the April-June quarter over the previous three months, slightly above market expectations. Meanwhile, the Chinese yuan moved between 6.8225 and 6.8258 per dollar and the Thai baht was shackled between 33.4 and 33.46 per dollar.
The yuan has gained 7 percent so far this year, outperforming its regional peers, but most analysts expect the pace of appreciation will slow in the coming months as easing inflation and slowing growth reduce the need for a tighter policy.
The yuan, which has been rising steadily since it was revalued in July 2005 and freed from a dollar peg, may even weaken slightly against a broadly stronger dollar in the first half of next year, Standard Chartered Bank analysts said. The Philippine peso gained 0.4 percent to 44.05 per dollar with the help of lower oil prices. Lower oil prices are good news for the Philippines, which covers almost all of its fuel demand with imports.
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