Most emerging currencies rebounded on Friday on pre-weekend short-covering in choppy trading, but investors hesitated to chase regional units due to shaky Japanese financial markets and expectations of a shift in US monetary policy. The Taiwan dollar rose on demand from exporters, while the Philippine peso and the South Korean won advanced as investors covered bearish bets.
Trading was subdued with financial markets in Singapore, Malaysia and Thailand closed for holidays. Still, emerging Asian currencies are unlikely to appreciate further on growing speculation that the Federal Reserve may scale back its bond-buying programme and with risk sentiment fragile, traders and analysts said.
"Concerns over a US monetary policy shift and shaky Japanese government bonds will prevent Asian currency appreciation," said Jeong My-young, Samsung Futures research head in Seoul. On Wednesday, Fed Chairman Ben Bernanke suggested tapering of the Fed's stimulus could happen in one of the next few policy meetings. The remarks, along with weak China manufacturing data hit emerging Asian currencies, stocks and Japanese government bonds on Thursday.
Sentiment for emerging Asian currencies has turned bearish with the view on the Singapore dollar the most pessimistic in more than four years, a Reuters poll showed on Thursday. Most regional currencies have been weaker so far this year as investors expect the Fed's potential policy change to reduce global liquidity and inflows to Asia. The Taiwan dollar rose slightly on demand from local exporters for month-end settlements.
But the currency's upside was capped as the central bank was spotted intervening, while foreign financial institutions bought the US dollar, traders said. The authority also reminded banks to report to the central bank before selling more than $3 million, they added. Earlier this week, the central bank urged lenders to limit their short positions in the greenback in a rare appeal to curb the Taiwan dollar's strength.
The Taiwan dollar was expected to move between 29.800 to 30.000 against the US dollar, traders said. The Philippine peso gained as investors covered short positions in the second worst performing emerging Asian currency for the week. The peso has lost 0.9 percent against the dollar so far this week, compared with a 1.1 percent depreciation in the Indian rupee, according to Thomson Reuters data.
If those currencies maintain their losses, they would be the two worst performing emerging Asian currencies of the week, the data showed. Trading volume was thin, exaggerating the peso's move, traders said. Investors hesitated to add bullish positions in the peso on expectations of the Fed's policy shift, they added. A foreign bank trader in Manila said the peso may strengthen to 41.22 per dollar, the session low of Wednesday, in the next couple of weeks, noting that investors appear to have hold long dollar positions to clear. But the trader said: "given the dollar's bullishness across the board, it will be a slow grind to get there.
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