Most emerging Asian currencies eased on Friday as investors booked profits from weekly gains ahead of key US jobs data, although regional units are unlikely to lose their near-term momentum given the Federal Reserve chair's dovish turn. The Chinese yuan weakened despite strong manufacturing activity as Standard & Poor's on Thursday cut its outlook for the country's sovereign credit rating outlook to negative from stable.
South Korea's won slumped as foreigners sold local stocks for a second day in a row and investors grew wary of possible intervention by the foreign exchange authorities to curb its strength. The US dollar stayed defensive after losing more than 4 percent in the first quarter, its worst performance since the third quarter of 2010.
Investors were awaiting March US jobs data due later in the day. The nonfarm payrolls (NFP) report is expected to show that US employers added 205,000 jobs last month. Still, emerging Asian currencies are expected to stay firm with expectations of a near-term US interest rate hike waning after Fed Chair Janet Yellen recommended caution on tightening, analysts and traders said. China's economy gave a glimpse of vitality on Friday when an official survey showed activity in China's manufacturing sector unexpectedly expanding in March for the first time in nine months.
"We expect, in the very near term, that Asian FX could gain against the backdrop of dovish Fed and stabilisation in China," said Nordea Markets' senior analyst Amy Yuan Zhuang, referring to a period of one to three months. Strong US jobs data may not drag such a trend, she said. "The market has understood that the Fed will not only base the decision on nonfarm payrolls and US conditions. Global conditions are taken into account as well."
Yellen on Tuesday highlighted risks to the global economy and said the Fed should proceed "cautiously" on increasing borrowing costs. Sentiment towards most emerging Asian currencies became more optimistic with all regional units seeing bullish bets for the first time in more than 1-1/2 years, a Reuters poll showed on Thursday.
WEEKLY GAINS Despite Friday's losses, regional currencies were set to post weekly gains led by the Malaysian ringgit. "The market has been short USD for the whole week and investors were buying back some of USD ahead of NFP," said a senior currency trader at a Malaysian bank in Kuala Lumpur. "I'm aiming at 1.5 percent to 2 percent gains in Asian currencies from here. Yellen wants low rates and low USD."
The ringgit has risen 3.4 percent against the dollar this week on capital inflows, the largest weekly gain since late January, according Thomson Reuters data. The Singapore and Taiwan dollars have appreciated 1.5 percent so far this week, while the won ended the week up 1.3 percent. The yuan has climbed 0.8 percent so far this week, which would be the largest weekly gain since mid-February. China's central bank set its daily guidance rates firmer to reflect the dollar's weakness. India's rupee and the Philippine peso gained 0.6 percent, while Indonesia's rupiah and Thailand's baht were up 0.4 percent.
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