The South Korean won hit a more than nine-month low and the Taiwan dollar touched a near five-month trough on Thursday, as the outlook for Asian currencies remained clouded by expectations the Fed could raise rates at a faster pace next year.
The South Korean won slipped to as low as 1,200.0 per dollar, its weakest since March. The Taiwan dollar touched its lowest level since late July at 32.080, before recovering on the back of US dollar selling by local exporters. Elsewhere, the Singapore dollar, the Chinese yuan and the Thai baht edged lower, while other Asian currencies were either steady or firmer.
Market participants say traders might trim some of their bullish bets on the dollar to book profits with the year-end approaching, but the trend of a stronger dollar against Asian currencies was likely to persist. "Short-term, there could be some minor adjustment to the level of where dollar/Asia is trading," said Christopher Wong, a senior FX strategist for Maybank in Singapore.
"But the underlying theme of policy divergence, inflation, policy uncertainty remain and is expected to keep the overall trend of a firmer dollar intact." Emerging Asian currencies have declined broadly since early November, as the dollar and US bond yields jumped on expectations that US President-elect Donald Trump's proposals for infrastructure spending and tax cuts will boost economic growth and inflation.
Asian currencies have come under renewed pressure after the Fed raised interest rates last week for the first time in a year, and also signalled three hikes in 2017. Worries about Trump's stance on trade have also weighed on the currencies of export-dependent countries in Asia. Trump has pledged to redraw trade deals to win back American jobs, and has threatened Mexico and China with punitive tariffs. "Everyone is looking to buy US dollars on dips," said a trader for a Malaysian bank in Kuala Lumpur.
Taiwan's central bank will likely leave its key policy rate unchanged at its rate review due after 0800 GMT on Thursday, but its outlook for 2017 will be key as the island's export engine begins to idle after the seasonal holiday boost and global risks emerge. The discount rate is expected to stay unchanged at 1.375 percent, 14 of the 15 economists polled by Reuters forecast. Central bank governor Perng Fai-nan said at the last quarterly meeting in September that domestic structural reform would have to drive growth. Strong growth and manageable inflation should let the Philippine central bank, at its first meeting since the Fed hiked US interest rates, keep its benchmark interest rate on hold at 3.0 percent on Thursday.
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