The South Korean won led Asian currencies higher on Friday, extending a rally against the dollar this week, but the upside was limited by uncertainty over the dollar's trend ahead of US jobs data.
The won gained as much as 0.6 percent to 1,035.6 per dollar, mirroring a rise in the Japanese yen. The won ended local trading half a percent higher at 1,037.2.
Other Asian currencies were marginally higher, barring the Indian rupee, which fell to a 10-month low of 44.36 per dollar, after bearish comments from a senior official at the country's biggest commercial bank.
T.S. Bhattacharya, managing director at State Bank of India, said he expected the currency to lose ground as the India's trade deficit widens and oil prices remain high.
The dollar posted its biggest one-day percentage loss in over 3 years against the euro on Thursday. Hawkish comments from European Central Bank President Jean-Claude Trichet, technical factors, and concern the dollar's month-long rally was overdone all conspired to drag the currency lower.
Markets are not willing to forsake the dollar entirely though.
"Very tentatively, I think things are turning around a little bit but we don't have any great conviction," said James Malcolm, Deutsche Bank's currency strategist.
Economists surveyed by Reuters expect Friday's US payrolls data for September to show the first monthly decline in jobs since May 2003, owing to layoffs after Hurricane Katrina.
The survey forecast the data would show 143,000 jobs were lost, but predictions ranged between a loss of 25,000 to a loss of 325,000. The data is due for release at 1230 GMT.
Tim Condon, ING's head of Asian research, said the won was the most vulnerable currency in Asia after a run-up in stock prices and as markets prepared for higher US rates.
"The Korean won is vulnerable to continued net foreign selling of Korean equities and an upward revision of the likely path of the fed funds rate. We recommend investors position for further depreciation of the won against the dollar," Condon said in a note to clients.
He said foreigners had turned net sellers of Korean shares in mid-September. Foreigners have been net sellers of South Korean stocks for the past 11 sessions.
Locals are also likely to become net sellers, he said.
"There are Korea-specific reasons for being bearish on the stock market. In particular, the recent divergence of the stock market from industrial production, the driver of profitability and, presumably, stock prices," Condon wrote.
"Korean export prices are plunging and the US is in the mature stage of a Fed hiking cycle, both of which, we believe, make it more likely that locals will join foreigners as net sellers."
Several analysts said the Indian rupee too was vulnerable because of pressure on the current account deficit caused by soaring oil import costs.
The rupee broke out this week from the 43 to 44 rupee per dollar range in which it has traded since the start of the year.
"The best Asian exposure is sell rupee buy euro," said Craig Chan, currency strategist at Royal Bank of Scotland.
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