Emerging Asian currencies fell on Tuesday with investors anxious about capital outflows if the Federal Reserve cuts its stimulus, while fear of accelerating inflation due to a planned fuel hike contributed to a slide by the Indonesian rupiah. The rupiah fell even though the country's parliament took a big step that should help stabilise the currency by agreeing to a revised 2013 budget to raise gasoline and diesel prices after a long delay.
The Malaysian ringgit hit a near 11-month low on weaker bonds amid foreign selling. The Philippine peso and the Singapore dollar fell as investors covered short positions in the US dollar. Emerging Asian currencies are expected to depreciate further if the Fed hints at withdrawing monetary easing after a two-day policy meeting that starts later on Tuesday.
On Tuesday, emerging Asian currencies were weak even though the dollar was limp in Asia. "Unwinding aside, this may be symptomatic of a global market attempting to internalise the potential end of the easy-money era, especially with global growth still looking fragile," Emmanuel Ng, a foreign exchange strategist for OCBC Bank, wrote in a client note. Regional currencies were already under pressure from expectations of the Fed reduction in its bond-buying programme, doubt on the effectiveness of Japan's reflationary policy.
Investors had bought higher-yielding assets in emerging Asia with easy money printed by major central banks including the Fed. A policy shift by it could reduce global liquidity and inflows to the region, traders and analysts said. The rupiah's spot indicative prices lost as much as 0.7 percent to 9,955 per dollar. Later, the currency recovered some of the slide as the central bank was spotted providing dollar liquidity, traders said. Indonesia will hike petrol prices once the government has finalised the process to compensate poor families for the rise in fuel costs, the finance minister said.
"It creates more two-way price actions in dollar/rupiah, but it isn't a game changer," said Jonathan Cavenagh, a senior FX strategist at Westpac in Singapore, adding the fuel price hike will add to inflation expectations. The ringgit declined 0.8 percent to 3.1580 per dollar, the weakest since July 30 last year.
Malaysian bonds slid with the 10-year government bond yields and the three-year yields higher. The Malaysian currency is likely to stay weaker, traders and analysts said. "We are likely to continue to see selling pressure in MYR, and see it underperforming its Asian counterparts," Sacha Tihanyi, senior currency strategist for Scotiabank, said in a client note.
The peso fell as much as 0.8 percent to 43.22 per dollar. The Philippine currency is expected to weaken further if the Fed suggests it will trim asset purchases. Still, some traders said the peso has priced in such expectations to some degree with investors appearing to hold long dollar positions. "My original view was that the 43.32 is dollar/peso's high for the year already, but it is very tough to call with the FOMC," said a foreign bank trader in Manila, referring to the Federal Open Market Committee.
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