Most Asian currencies weakened on Monday as the dollar consolidated gains made after data showed US wages rose at their fastest in more than 8-1/2 years, fuelling expectations and higher interest rates. The dollar index against a basket of six major currencies, stood little changed at 89.127 after gaining 0.6 percent on Friday. The jobs report supported for the dollar, which had slipped to a three-year low of 88.438 late in January due to factors including perceptions of narrowing yield advantage.
"If we start to see positive inflation surprises on a sustained basis, then I think it will be quite damaging for Asian currencies," said Sim Moh Siong, FX strategist at Bank of Singapore. "If the wage pressures that we saw last Friday was a one off for whatever reason and we see a much more gradual buildup in wage pressures and therefore a gradual buildup in inflation then it could be more benign for Asian currencies."
On Friday, San Francisco Fed President John Williams said faster economic growth could mean it raises rates three or four times this year. Higher US rates reduce the relative attractiveness of assets denominated in emerging market currencies. The US data led bond yields higher, resulting in a sell-off in Asian stocks, with every single bourse stumbling. Japan's Nikkei sank 2.6 percent, while Australia's main index lost 1.6 percent and Chinese blue chips slid 0.7 percent.
In other Asian countries, the Thai baht was among the region's biggest losers, weakening about 0.41 percent. Similarly, the Taiwan dollar slipped 0.16 percent and the Malaysian ringgit by 0.22 percent. Moving in the other direction, the Singapore dollar firmed about 0.17 percent.
India's rupee firmed about 0.02 percent. The country's central bank is scheduled to set rates including the repurchase rate and the cash reserve ratio on Wednesday. The Chinese yuan was 0.05 percent firmer despite the People's Bank of China setting the mid-point fixing rate at 6.3019 against the dollar, weaker than the previous fix of 6.2885 on Friday. South Korea's won was 0.92 percent weaker against the dollar, after touching its weakest level since the middle of December.
"The won itself to me is more a position adjustment of what we have seen so far rather than an indication that we are going to see sustained weakness for the won," added Bank of Singapore's Siong. Indonesia's rupiah weakened 0.35 percent, shrugging off firm economic growth numbers. Indonesia's economy grew at its fastest pace in four years in October-December, the statistics bureau said on Monday.
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