Asian currencies rose on Tuesday against a broadly weak dollar, as investors positioned for another rate cut from the Federal Reserve this week aimed at preventing the world's largest economy from slipping into recession. The Philippine peso hit a two-week high at 40.65 per dollar, up about 0.7 percent from Monday's close.
A Trader in Manila attributed the peso's strength to rising local stocks and the general weakness in the US dollar. "Probably the market is waiting for the impact from the Federal Open Market Committee (FOMC) meeting," he said. The Chinese yuan hit a post-revaluation high at 7.194 per dollar as policy makers kept up efforts to tighten monetary conditions to help rein in inflation.
The Malaysian ringgit hit a decade-high at 3.234 per dollar, up almost 0.3 percent from late Asian trade on Monday. The ringgit, the top performer so far this year in emerging Asia, has gained more than 2 percent versus the dollar, supported by a faster appreciating yuan with which it closely correlates.
The Singapore dollar hit a fresh 10-1/2-year high at 1.4185 per US dollar, up a quarter of a percent from late Asian trade on Monday. "The US dollar should grind lower slowly though fears of MAS will likely stall any quick move," said a Singapore-based trader, who expected the currency to move between 1.4170 and 1.4220 in the near term.
The Monetary Authority of Singapore, the central bank, is under pressure to tighten policy by allowing the currency to rise to check inflation, but it still intervenes in the market to limit the pace of appreciation, analysts say.
The US central bank, which slashed its interest rate by 75 basis points last week, is expected to cut rates again by as much as a half-point to 3.0 percent after its two-day meeting ending on Wednesday.
That would push US interest rates lower than policy rates in most Asian economies, with that in Indonesia at 8.0 percent and the rate in the Philippines at 5.25 percent. "We think dollar weakness could very well extend," said Mirza Baig, currency strategist at Deutsche Bank. "Improving carry and larger sterilisation costs for central banks will probably benefit most in general."
But David Mann, strategist at Standard Chartered Bank, cautioned that Asian currencies may take a hit later this year as the US economy falters amid the housing and credit turmoil.
"We doubt that the Fed will be able to stop the weaker economic news from spreading to Asia in coming months. When there is more hard evidence of this that is when we see Asian FX being affected in the second and third quarter," he said.
India's central bank kept its key lending rate unchanged at 7.75 percent at a policy review on Tuesday, citing inflationary risks but signalling it stood ready to act.
The Indian rupee was little changed after the rate decision, hovering around 39.38 to the dollar. The rupee, one of Asia's best performing currencies in 2007, has made little headway so far this year as local stocks fall amid jitters about a US recession.
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