Asian currencies fell on Thursday as investors fretted about higher US interest rates after minutes from the Federal Reserve's latest meeting suggested the central bank remained concerned about inflation.
The Philippine peso eased to 52.98 per dollar, its lowest level in five months, while the Thai baht slipped to 38.24 to the dollar - down about 0.6 percent from a 1-1/2 week high set on Wednesday. The yen was down about 0.8 percent from late Asia trading levels on Wednesday, leading the sell-off in the region.
While the minutes from the Fed's May 10 meeting showed the central bank was not certain how much more monetary tightening, if any, was needed, a mention that inflationary pressures were rising helped reinforce expectations for more rate increases.
"The FOMC was more hawkish than the market had anticipated, as there were no hints that the Fed was at the point of leaning towards leaving rates unchanged in June," said Sue Trinh, a currency strategist at RBC Capital Markets. "They see risks to inflation higher, and this is of clear concern to them."
Dealers said that global risk aversion, which sparked heavy selling in emerging markets in May, has yet to abate and Asian currencies were vulnerable to further selling in the near term. "Medium-term, we are still positive on Asian currencies," said Deutsche Bank currency strategist Mirza Baig.
"But short term, the market has to correct further before Asian currencies renew their trend, while people are also revising their expectations for US interest rates."
A trader in Manila said the peso was coming under pressure since it had lagged the latest sell-off in emerging markets. "The other factor for the peso is the interest rate differential with the US," he said.
The Philippine central bank holds a policy meeting on Thursday and is widely expected to leave its overnight interest rate for borrowing unchanged at 7.50 percent. The US central bank has lifted policy rates 16 times since mid-2004 and the overnight Fed Funds rate is at 5 percent.
In the face of risk aversion, investors were increasingly selective about which currencies they moved into, dealers said.
The Indian rupee has been one of the hardest hit regional currencies amid heavy foreign selling of local shares and as investors' focus falls on India's current account deficit.
On Thursday, the rupee edged up from Wednesday's three-year low of 46.57 per dollar. It bucked the regional trend as banks unwound long-dollar positions on expectations that exporters would take advantage of the rupee was not on safe ground yet. The Singapore dollar eased about 0.4 percent to 1.5820 per US dollar, but remained above one-month lows hit in May at about 1.5970.
It is managed within an undisclosed trade-weighted band against a basket of currencies.
Markets in Taiwan and Hong Kong reopened after being closed for a public holiday on Wednesday. South Korean markets, which were shut on Wednesday for local elections, also resumed trade.
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