Asian currencies rose on Thursday after a disappointing reading on US factory activity helped spur a drop in US bond yields and blunted the dollar's strength. Leading the gains were the Malaysian ringgit, which pulled up from a six-month low that had been set on Wednesday. "We did see the sharp drop in (US) front-end yields yesterday and I think that's really taken some of the wind out of the dollar's sails," said Mitul Kotecha, head of FX strategy, Asia-Pacific for Barclays in Singapore.
"Probably near-term I would imagine there is going to be some consolidation. The move in dollar/Asia has been fairly sharp in a short period of time," he added. US Treasury yields fell on Wednesday after US manufacturing growth unexpectedly slowed and as worsening factory activity in Europe and Asia increased concerns about faltering global growth.
The US two-year Treasury yield had slipped nearly 6 basis points on Wednesday, its biggest one-day drop in two months. The US two-year yield eased a bit further in Asian trade on Thursday and last stood at 0.516 percent. Still, there was also caution on the near-term outlook for emerging Asian currencies due to declines in Asian stock markets. South Korean equities were down 0.8 percent, Philippine equities fell 1.0 percent and Indonesian stocks dropped 1.9 percent.
"Asian currencies may not find shelter from the dollar for long if global sentiment continues to deteriorate," Emmanuel Ng, an analyst for OCBC Bank, said in a research note. Emerging Asian currencies have been under pressure recently as investors positioned for the possibility that when the US Federal Reserve finally raises interest rates, the pace at which borrowing costs will be raised could be faster than expected.
An increase in US borrowing costs and rises in US bond yields can dampen the appeal of higher-yielding currencies and assets. The rupiah lagged behind its regional peers and slipped 0.2 percent to 12,152. The rupiah has been hit recently by concerns that an opposition-dominated parliament could obstruct incoming president Joko Widodo's reform programme.
The rupiah may also be hampered by a worsening of investors' appetite for risk. "Waning risk appetite should weigh on the IDR as seen in the recent sell-off of Indonesian asset by foreign funds with a net $31.85 million in equities sold yesterday," analysts at Maybank said in a research note.
MALAYSIAN RINGGIT The ringgit rose 0.7 percent to 3.2515. On Wednesday the ringgit had hit a six-month low of 3.2860, its lowest level against the dollar since late March. In addition to the dollar's broad weakness, the ringgit was supported by the Malaysian government's decision to cut fuel subsidies, a Singapore-based trader said. Malaysia said on Wednesday it will implement a round of subsidy cuts on fuel this month, its second since September 2013, as it looks to strengthen public finances.
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