Most emerging Asian currencies rose against a weaker dollar on Friday, but were set to end the week sharply lower as a scramble for hard cash and surge in demand for the greenback prompted investors to pare holdings in Asian bonds and currencies. The US dollar shed nearly 1% in early Asian trade and most regional currencies rose after the Federal Reserve opened the taps on Thursday for central banks in nine additional countries to access the greenback.
However, Asian currencies faced a double whammy over the week from investors' flight out of regional bonds in a bid to stay liquid and marked dollar strength due to stockpiling of the currency. For the session, the South Korean won climbed nearly 3.7% in its biggest intraday percentage gain since April 2009.
The Bank of Korea was one of the nine central banks that agreed to a currency swap deal with the Fed to help stabilise its foreign exchange market.
Singapore's central bank was part of the agreement too, establishing a $60 billion swap facility with the Fed. The Singapore dollar gained 0.4% but was down more than 2% for the week. The Chinese yuan bounced 0.5% to 7.076, helped by Beijing's unexpected decision to keep a benchmark lending rate unchanged.
The Philippine peso climbed 1.4% and the Malaysian ringgit firmed nearly 1%. Despite the relief at the end of a tumultuous week, many are convinced that the strength of the dollar will stay through the pandemic.
The dollar is likely to reassert its dominance once the correction of panic selling has run its course, wrote Jeffrey Halley, a senior market analyst for Asia Pacific at OANDA. "That applies equally to the major currencies, but most especially emerging markets, where the dollar shortage will remain a serious issue in the months to come," he said.
Sustaining losses even on Friday, the offshore Indonesian rupiah was down nearly 9% for the week - its biggest loss since April 2001. Demand for the country's high-yielding bonds has plunged, with yields on 10-year bonds rising around 86.5 basis points since the start of the week in their sharpest gain since January 2011.
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