The Philippine peso and Indian rupee, currencies sensitive to fuel prices, firmed on Tuesday as oil prices fell and expectations rose that interest rates will edge higher as regional authorities battle inflation. Other currencies in Asia remained in tight ranges ahead of the Federal Reserve's policy decision later in the day, with investors expecting US authorities to keep interest rates steady until the housing sector stabilises.
The US dollar rose to a seven-week high against a basket of major currencies on Tuesday, supported by a sharp fall in oil prices to a three-month low. The peso rebounded from a two-week low hit in the previous session and climbed 0.7 percent to 44.09 per dollar after the Philippine central bank governor said monetary policy would continue to be appropriately tight until inflation expectations became manageable.
"The peso is tracking crude oil lower, and inflation numbers are no surprise," a trader in Manila said. Philippine annual inflation in July soared to a near 17-year high of 12.2 percent, reinforcing expectations for a third consecutive interest rate rise at its monetary policy review later this month.
"We do believe that further interest rate hikes are warranted and look for the central bank to deliver further tightening in the months ahead," said Frederic Neumann, HSBC's senior Asian economist.
The rupiah inched up 0.2 percent to 9,075 in early trading, matching a five-month high hit on Friday, and held on to its gains after the Indonesian central bank raised its key overnight rate by 25 basis points to 9 percent for the fourth time this year.
In India, where the economy faces a deeply negative trade balance due largely to imported oil, the rupee clambered up by half a percent to a one-week high of 42.26 per dollar on easing oil prices. Analysts said they expected India's central bank to further increase its repo rate and banks' reserve requirements before the end of the fiscal year in March 2009 after policy tightening last Tuesday.
The South Korean won steadied near its previous close of 1,017.40 after traders said authorities had been seen selling dollars to buoy the won. Before the suspected intervention, the won fell to a two-week low of 1,018.9. South Korea's central bank is due to review its monetary policy on Thursday, and a majority of local bond market traders said they expected the authorities to raise interest rates in a bid to tackle inflation, a private survey showed.
But a Reuters poll suggested the rate decision may be a close call as several analysts believed the central bank may hold rates in light of growing indications of a weakening domestic economy.
The strength of the US dollar weighed on most regional currencies and pressured the Singapore dollar and Taiwan dollar lower. These two in Asia usually follow the movement of the euro and other majors versus the US dollar. Analysts at UBS said concerns over growth in Singapore also weighed on the city-state's currency, which fell 0.4 percent to 1.3768 on Tuesday, its weakest since June 16.
"Views of peaking domestic inflation and plunging export numbers are important drivers of the recent Singapore dollar weakness in our view," they said in a note. The downside of other Asian currencies was limited by market nervousness as investors awaited the Fed's decision and other interest rate reviews this week, including those by authorities in the euro zone and Britain on Thursday.
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