Asian currencies, with the exception of the Thai baht, extended gains on Thursday after a second US inflation report strengthened expectations the Federal Reserve would not raise interest rates further. The yen rose half a percent from levels in late Asian trading on Wednesday to trade around 115.30 per dollar.
US core consumer prices rose 0.2 percent in July from June, showing price pressures were subdued. That, coming after Tuesday's data showing softer producer prices, reinforced the view US rates have peaked. The Fed left rates unchanged last week after having raised them at 17 consecutive meetings.
The Taiwan dollar buoyed by more than $500 million of inflows into Taiwan's stock market this week, rallied half a percent to 32.55 per US dollar before pulling back. Indonesian markets were closed for a holiday. The South Korean won and Philippine peso rose a quarter of a percent each. Analysts said the return of foreign investment flows to Asia was driving the rally.
BNP Paribas estimated foreign portfolio inflows to six Asian countries - Taiwan, Thailand, India, the Philippines, South Korea and Indonesia - were $373 million in the week ending August 11 and that followed four weeks of net outflows.
The baht weakened by about half a percent to levels around 37.55/60 per dollar.
A Bangkok-based trader said baht-supportive flows from Singapore state investment firm Temasek Holdings' repayment of a nearly $1 billion loan, taken earlier this year when it bought a stake in telecoms group Shin Corp, had ebbed. Those flows had driven the baht to a 6-1/2-year high on Friday and prompted the Bank of Thailand to intervene to cap the currency.
Philip Wee, DBS Bank's currency strategist, said he expected the baht to head higher in line with the regionals. But the Bank of Thailand would intervene to ensure it did not appreciate too much on a trade-weighted basis. "The baht is at the strong end of their real-effective-exchange-rate tolerance level," Wee said.
"Also remember, they did not mind baht strength earlier in the year because they were trying to rein in inflation at below the policy rate. Now real interest rates are positive, so they do not need to worry about inflation," Wee said. The Philippine peso hit 51.09 per dollar in early deals, a level seen in early April, and then stalled.
"Just like the other currencies, peso has benefited from the recent data against the prospect of higher US interest rates," said Marcelo Ayes, head of markets strategy at Equitable PCI Bank in Manila. Ayes said the dollar/peso pair had tested and dropped through technical support at 51.25, would probably soon touch 51.00 and then head towards the peso's record high of 50.88 in coming weeks.
Other factors underpinning the peso were data showing an improving government budget balance, which raises the possibility of a sovereign rating upgrade, and indications that Philippine President Gloria Macapagal Arroyo would survive an opposition attempt to impeach her, Ayes said.