Most Asian currencies made little headway on Monday with the dollar hovering near seven-week highs and caution growing ahead of the US Federal Reserve's policy review. At its two-day meeting starting on Tuesday, the Fed is expected to kick off a long-anticipated reduction of its bloated balance sheet, but leave interest rates unchanged after raising them twice this year. The focus will be on any comments on inflation or other trends that could change the markets' blase view on the chance of a third hike in December.
"Asian currencies are broadly mixed today. On the one hand the continued strength in US equities and risk sentiment has been supportive while on the other, the Fed and related concerns are likely to remain in focus." said Dushyant Padmanabhan, an FX strategist at Nomura. "A balance sheet adjustment is largely expected by the market, and an announcement as such should have a relatively limited impact. However another factor to watch is whether the Fed adjusts their projections of the fed funds rate (the "dots") in this meeting, which could have a more material impact on the US dollar." he said.
The dollar held near a seven-week high versus the yen on Monday, supported by recent rises in US Treasury yields. In Asia, trading in most currencies remained broadly subdued. However, Malaysian ringgit rose to a more than one-week high, while Won gained as much as 0.5 percent. The won recouped much of its losses from last week as traders looked past recent North Korean provocations.
North Korea had fired a missile over northern Japan on Friday, not long after Pyongyang's latest and most powerful nuclear test. Simmering tensions in the Korean Peninsula had made the currency a risky bet for investors with sentiment towards won weakening to its lowest since mid- January, a recent poll of 12 analysts, traders and fund managers showed. "Markets have largely looked beyond bouts of geopolitical risks triggered by North Korea's ongoing missile tests. " Mizuho Bank said in a note. The currency has appreciated about 7 percent against the dollar this year.
The baht traded at 33.08 against the dollar on Monday. The Thai central bank governor said the bank "acted on some speculation in the currency", but did not provide further details. In August, the central bank had asked commercial banks for data on an "unusually high volume of transfers between non-resident baht accounts which may relate to baht speculation" and warned it might "consider additional measures to limit the opportunity" to drive the currency higher. Driven by stronger economic growth and easing political uncertainities in Thailand, the baht has appreciated about 8 percent against the greenback this year, becoming Asia's best performing currency.
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