Asian currencies rebound

Asian currencies bounced modestly on Friday as the dollar took a breather from a strong rally, though most were set for monthly declines in a reflection of a resurgent greenback riding on US rate hike expectations and the Trump administration's tax plan. The Indonesian rupiah led the regional gainers on the day, while the South Korean won, the Philippine peso and Indian rupee all advanced more than quarter of a percent.
"There is a little bit of profit taking in dollar," said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore. For the week, the dollar index, which measures the greenback against a basket of six major currencies, has gained 1.1 percent, putting it on track for its biggest weekly gain since December. Over the month, the Indian rupee and Japanese yen fell more than 2 percent each, while the South Korean won, China's yuan and Indonesian rupiah have lost about 1 percent or more.
Some local news also lent support to regional currencies on the day. On Thursday, India's federal government said it stuck to its budgeted market borrowing target for the fiscal year ending March 2018, which cleared concerns of a fiscal deficit overshoot. Also India's central bank said it would raise the limit for foreign investments in government bonds by 80 billion rupees for the October-December quarter. Foreign investments in Indian debt markets were close to hitting statutory investment limits, stoking fears it would slow bond investments by foreigners.
Investors were positive on the Thai baht, on hopes for solid trade data for this month after strong custom-cleared export figures in August. Earlier in the week, Thailand's central bank raised its forecasts for 2017 economic growth and exports on Wednesday. The South Korean won and other regional currencies pulled ahead on the day, partly as North Korean tensions simmered down a little during the week.
However, China's yuan fell after its central bank lowered the official yuan midpoint for the fifth straight day. US bond yields jumped on the Federal Reserve's signal it is on track to raise rates again in December and President Donald Trump's tax proposal, reducing the appeal of regional currencies. Regional exchange data showed foreign investors pared their holdings in Asian equities and bond markets this month.
However, Nizam Idris, head of strategy, fixed income and currencies at Macquarie Bank, said US tax reform is not such a bad thing for Asia as demand from the US will rise, which would benefit Asian exports. "For the rest of the year, you need to split it (Asian currencies) into two groups," said Macquaire Bank's Idris. "Currencies of exporting economies like Korean won, Taiwan dollar, Singapore dollar will do well. But currencies which are driven by bond flows will weaken."