The Philippine peso and Korean won fell slightly on Tuesday with markets turning nervous as they awaited US manufacturing data later in the day for clues on how much the credit market turmoil had affected economic activity.
After the US Labour Day holiday on Monday, there was little overnight news guiding Asian markets. Asian currencies and stock markets opened sluggishly, but most of the high-yielders fell as the day progressed and stocks in Japan, Thailand, Indonesia and Korea were among those that declined. The Philippine peso rose as far as 46.47 per dollar, and then fell nearly half a percent to 46.78.
The Malaysian ringgit weakened 0.1 percent to 3.5050 per dollar, the Indonesian rupiah fell by the same extent to 9,395 per dollar and the Singapore dollar moved between 1.5205 and 1.5255 per US dollar.
August was a volatile month for the regional currencies and stocks as they gyrated with a steady stream of news from central banks and from financial institutions and brokerages affected by the US subprime mortgage problems. Analysts said the relative calm of the past few days was unlikely to last as the world's leading economies release growth and consumption data for August.
The United States releases August manufacturing data from the Institute for Supply Management on Tuesday, and employment data later in the week. "We believe that the current rebound in risky asset markets is fragile and could be brought to an abrupt halt this week, particularly with the potential for negative US data surprises, triggering a renewed spike higher in volatility," BNP Paribas said in a note to clients.
Westpac Bank said in a note to clients the funding situation in interbank markets needed to improve before there was a confident move higher across assets in Asia. On Tuesday, Australia's central bank provided banks with more cash than expected to try to restrain rising bank bill rates. Despite the calm so far this week, traders said risk aversion remained high and traders were unwilling to lock themselves into positions until they knew how monetary authorities would respond to the turmoil in credit markets.
"It's lifeless. The currency seems to be stabilising at this level," a trader in Jakarta said of the rupiah, which has fluctuated between 9,250 and 9,500 in the past month.
"So far it's only been talking, no real policy change. People will stay away until September 18, until they know what the Fed intends to do," he said. Expectations have been building for the Fed to cut the fed funds rate by at least a quarter percentage point on September 18, although Federal Reserve Chairman Ben Bernanke gave no clues when he spoke on Friday, reassuring markets that he would shield the economy from any impact.
Meanwhile, expectations for the European Central Bank to raise almost dried up. In emerging Asia, the Bank of Korea and Bank Indonesia review rates this week and both are expected to stay pat. Indonesia's annual inflation in August rose sharply to a 5-month high and economists think that could prompt Bank Indonesia to hold rates steady on Thursday, after having cut them 13 times since April last year.
DBS Bank analysts said in a note the Indonesian central bank would refrain from cutting rates on account of the rupiah's weak spell. If the Fed cuts rates later this month, pressure on the rupiah to weaken on account of narrowing interest rate differentials would ease, they said.