Asian currencies eyes Fed

The Indian rupee dipped nearly quarter of a percent on Wednesday, despite a sharper-than-expected jump in consumer inflation which breached the central bank's 4 percent target. Other Asian currencies were little changed as traders were wary of taking fresh positions ahead of a US Federal Reserve rate decision later in the day. With the Fed widely expected to hike rates, the focus is turning to any clues on its 2018 tightening plans.
The dollar index, which tracks the greenback against a basket of six major rival currencies, fell as Democrat Doug Jones beat Republican Roy Moore in a bitter US Senate race in Alabama. The dollar index was down 0.2 percent at 93.948. However, for market participants in Asian currencies, the main focus was on the Fed.
"I think the market is expecting a dovish hike," said Christopher Wong, an FX strategist with Maybank. On the other hand, if the Fed sounds hawkish with upwards revisions to inflation and growth projections as well as a commitment to keep its guidance of three rate hikes next year, it would result in higher US Treasury yields, tighter financial conditions and could strengthen the dollar, Wong added.
In India, analysts said stronger price pressures could put pressure on the central bank to raise policy rates in 2018. While higher rates would prop up most currencies, the rupee tends to be more influenced by foreign exchange inflows into stocks and bonds, which could be dampened by a higher currency.
Data late on Tuesday showed annual inflation accelerating to a 15-month high of 4.88 percent in November, driven by a surge in food prices. The Indonesian rupiah hit a near 1-1/2 month low against the dollar, as higher oil prices and foreign outflows undermined the currency.
Foreigners have sold about $250 million of Indonesian equities so far this month, exchange data showed. Indonesia's central bank, which will unveil a policy decision shortly after the Federal Reserve's rate decision, will keep its key rate unchanged on Thursday to maintain financial stability, a Reuters poll showed.
The Taiwan dollar was also marginally lower against the dollar on Wednesday, while all other regional currencies were trading flat, awaiting Federal Reserve meeting later in the day. The Fed will announce its decision on rates at 1900 GMT Wednesday followed by a statement. Chair Janet Yellen will hold a news conference at 1930 GMT.
After Asian currencies' strong gains this year, most of them have fallen this month as traders started to take profits. "We continue to expect profit taking on these AXJ currency gains in December," Leong Sook Mei, ASEAN head of global markets research for the Bank of Tokyo-Mitsubishi UFJ in Singapore, wrote in a note.