Some Asian currencies edged higher on Thursday as the dollar rally paused after the Federal Reserve kept interest rates steady, prompting investors to book profits on the greenback. The dollar's index against a basket of six major peers fell 0.03 percent to 92.487 after securing solid gains over the past week.
The Federal Reserve said inflation had "moved close" to its target and that "on a 12-month basis was expected to run near the Committee's symmetric 2 percent objective over the medium term." "We take this (the Fed's comments) to be an indication of the Fed's willingness to tolerate an overshoot in inflation in the coming months, hence 'further' gradual increases to the federal fund rate is still warranted and there is no need to rush the pace of rate hikes," MUFG bank said in a report.
Chang Wei Liang, FX strategist at Mizuho Bank, said some profit taking in the greenback strengthened Asian currencies on the day, but cautioned that it could be a blip. "This could be just a minor adjustment ahead of another rally in the dollar/Asia, assuming that wage inflation in the US continues to show signs of a pickup on Friday."
Closely watched US jobs data is due on Friday. The Singapore dollar and the Thai baht led regional currencies' gains against the dollar, rising 0.25 percent and 0.16 percent respectively.
The Indian rupee and the South Korean won also edged up on the day. But Indonesia's rupiah fell to its lowest in more than two years, hit by foreign selling in the local bond and equity markets.
Indonesian stock exchange and Ministry of Finance data showed foreigners sold securities worth $684 million in equity markets and $967 million in bonds in April. At the end of April the Indonesian central bank said it would be prepared to raise the benchmark interest rate if the rupiah's weakness threatened the bank's inflation target or disrupted financial market stability.
Mizuho's Chang said he is confident that the rupiah can remain stable this year. "I think there is some degree of central bank resistance towards further weakness in the rupiah," said Chang.
"We are not expecting too significant an increase in US Treasury yields going forward. That is likely to lessen pressures on the rupiah." Meanwhile, China's yuan touched a three-month low as the official midpoint setting was the softest since January.
"The USDCNY fixing was higher than expected, raising speculation that China is using yuan as a tool for the trade negotiations that would happen today," said a Maybank report. Talks between US Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He, to try to stave off a trade war, are due later in the day.
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