Asian currencies fell against a broadly stronger dollar on Monday after US consumer price data dampened prospects of further interest rate cuts from the Federal Reserve, with the Philippine peso leading the declines. The peso hit a one-week low at 41.68 per dollar, down about 1 percent from Friday's close, as investors took profits from the currency's rise in recent weeks.
"The probability of the Fed cutting interest rates is much smaller and concerns about the subprime problems in the United States are still there," said a Manila-based trader.
"Plus the peso has appreciated fastest (among Asian currencies), so there is some profit-taking," said the trader, who saw the next support level for the peso at 41.80. Despite the retreat, the peso remains the top currency in Asia with gains of 17.8 percent versus the dollar this year.
It has risen strongly since September 18, when the Fed cut its key interest rate by a hefty half point to limit the fallout from the housing and credit market woes, which undermined the dollar.
Many analysts expect the peso to correct in the near term after its recent rise, but they remain bullish on its medium-term strength because of the country's solid economic fundamentals and sustained capital inflows. Westpac analysts suggested taking profits now, after their recommendation in late October to buy the peso at 43.98 per dollar via three-month non-deliverable forwards.
"Having seen an almost 7 percent move lower in dollar/peso since, it is hard to see much more potential in this trade," they said in a research note, adding that remittance inflows into the country appeared to fade towards the year-end.
Data released on Friday showed that US consumer prices jumped 0.8 percent in November from October, the biggest gain since September 2005, as energy costs surged and a host of other prices marched higher.
That followed solid rises in retail sales and producer prices in November that cast doubt on whether the Fed would rush to ease monetary policy further after cutting interest rates by a quarter of a point last week - the third rate cut since mid-September.
Asian stocks continued weak after a fall in US stocks on Friday, with MSCI's measure of Asia Pacific stocks excluding Japan falling about 3.5 percent. "There is some wariness of adding to short dollar positions, most likely due to dollar shortages in the region as well as the higher than expected US inflation data, which has pared back expectations over the Fed easing next year," said David Mann, senior strategist at Standard Chartered Bank.
"But we still expect to see two more 25-basis-points rate cuts in the first quarter of 2008," he said. The Malaysian ringgit dropped as far as 3.337 per dollar, down two-thirds of a percent from late Asian trade on Friday. The Indonesian rupiah, the worst performer in the region this year, hit a two-week low at 9,400 per dollar.
"The rupiah seems to be following the regional trend since there is no indication of carry trade factors in play," said a trader in Jakarta. The dollar hit a two-month high against a basket of major currencies. The Thai baht fell sharply, sliding as far as 34.1 per dollar at one point, partly because of the dollar's strength and on speculation the Bank of Thailand may lift some capital controls imposed at this time last year.
However, some local traders doubted that this was behind the baht's fall. "I don't expect a big change from the BoT. There is some outflow from the stock market and that is why dollar/baht is rising today," one trader said.
Comments
Comments are closed.