The Philippine peso rebounded on Thursday as market jitters about the US subprime mortgage crisis eased, but the lingering concerns still put pressure on most Asian currencies. Ben Simpfendorfer, currency strategist at Royal Bank of Scotland, said the volatility facing Asian currencies could persist in the near-term.
"I think they should remain choppy, depending on how (the US) equity market trades overnight," he said. The peso steadied near 46 per dollar after rising as far as 45.95, which was up about 0.5 percent from Wednesday's close. The currency lost two-thirds of a percent in the previous session amid worries about the fallout from US subprime loans.
"People are expecting the central bank to retain interest rates and the dollar inflow will continue," said a trader in Manila. The Philippine central bank was expected to keep its overnight policy rates unchanged at its meeting on Thursday on expectations that money supply growth will continue to cool, creating room for rate cuts.
The Philippines attracted $592 million in net portfolio investments in May, the highest monthly inflow since the 1997 Asian financial crisis, due to bullish investor sentiment after generally peaceful elections.
The Japanese yen was little changed near an all-time low against the euro, giving muted reaction after the Bank of Japan kept interest rates steady at 0.5 percent. The Indonesian rupiah fell to a two-week low of 9,055 per dollar.
"The move is in tandem with some other currencies, there is no substantial news behind it," said a trader in Jakarta. "The worries about US mortgage market are still there." The South Korean won rose to a seven-month high of 916.50 per dollar, buoyed by the Bank of Korea's move to raise its overnight call rate target by 25 basis points to 4.75 percent.
The Seoul benchmark stock index KOSPI rose more than 1 percent as investors expect accelerating economic growth to sustain the market's rally in spite of higher borrowing costs. Upbeat comments on growth and warnings on inflation by Korean central bank officials after the first rate rise in 11 months, raised expectations that interest rates would go up further. Korean officials have repeatedly warned that the won's rapid appreciation could hurt exporters and threatened to intervene.
"But it's hard to see how Korea can weaken the won at the same time as its economic outlook brightens and the KOSPI surges to a new record high," said Sean Callow, currency strategist at Westpac.
Royal Bank of Scotland's Simpfendorfer said he expected the won to rise to 915 to the dollar by the end of this month, driven by improved investor sentiment and stronger economic expansion. The Chinese yuan steadied near 7.5667 per dollar after hitting a post-revaluation high of 7.5622 per dollar.
Investors are watching the pace of yuan appreciation after China reported on Wednesday that its foreign exchange reserves, the world's largest, swelled to $1.33 trillion by the end of June on the back of a surging trade surplus and capital inflows. The rapid build-up in reserves highlighted the uphill battle facing the central bank as it tries to prevent the yuan from rising sharply while tackling excess money flooding the financial system amid fears of economic overheating, analysts say.
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