South Korea's won led losses among emerging Asian currencies on Friday on expectations of an interest rate cut, while regional currencies slid as a top Federal Reserve official backed up US tightening. Most emerging Asian currencies were set to report weekly slumps with the won underperforming on persistent concerns over slowing global growth.
Earlier, the Bank of Korea left its policy interest rate at 1.50 percent unchanged, but economists expect a slash as soon as next month, given an overhaul of local shipbuilders and shipping companies. "If the BOK cuts in the coming months, in line with our forecast for a June cut, the move could be justified as a palliative measure to offset the negative impact of restructuring on employment and private consumption," HSBC economists stated in a note.
"Domestic demand is the one variable that the BOK can best influence, especially when considering the persistently subdued external demand outlook," they added. The South Korean currency was down 0.5 percent as of 0510 GMT, extending its weekly loss to 1.2 percent. With growing bets on a rate cut, sentiment on the South Korean currency already became the worst among regional units in the last two weeks with its bearish bets at largest since early March, a Reuters poll showed on Thursday.
Central banks in other Asian countries such as Japan and Taiwan are expected to join easing to prop up growth. By contrast, Boston Fed President Eric Rosengren said on Thursday the US central bank should raise interest rates again if data from the second quarter confirms the domestic labour market is near full strength and inflation is on track to accelerate. The comments lifted the dollar. Investors were awaiting US economic data such as April retail sales, due later in the day, to check the health of the world's top economy.
WEEKLY ASIA FX LOSSES Most emerging Asian currencies were on the course for another week of losses as global economic growth stayed sluggish with hopes waning on a recovery in China. The world's second-largest economy reported that its exports and imports in April fell more than expected. The Chinese yuan has eased 0.5 percent against the dollar so far this week, which would be the largest weekly decline since late March, according to Thomson Reuters data.
"There is still an outside chance of both the Fed hiking rates and/or the PBOC allowing the yuan to devalue given the shaky domestic economic recovery," said Stephen Innes, a senior trader for FX broker OANDA Asia Pacific in Singapore, referring to the People's Bank of China. "The markets appear very anxious with growing concerns that China's massive stimulus efforts now have long-lasting marginal effects while the unbridled mainland credit boom has increased the financial sector's risks dynamically."
The Philippine peso bucked against regional weakness with a 1.1 percent gain so far this week after a presidential election on Monday. President-elect Rodrigo Duterte will continue his predecessor's macro economic policies focusing on higher infrastructure spending and fiscal efficiency, aides said on Thursday in a bid to end uncertainty around his growth agenda.
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