Most Asian currencies firmed against a broadly weaker dollar on Friday after disappointing US durable goods data boosted hopes for further Fed interest rate cuts, with the Philippine peso the top gainer.
The assassination of Pakistani opposition leader Benazir Bhutto on Thursday had little direct impact on Asian currencies, even though concerns about regional political turmoil prompted some investors to seek the relative safe haven of bonds and gold.
"It's quite shocking news, but as far as Asian currencies are concerned, they might have a trivial impact only," said Enrico Tanuwidjaja, currency strategist at OCBC Bank in Singapore.
"Going forward, I think investors will selectively choose the emerging markets in which they are likely to go into, with the current instability in Pakistan, and to a lesser extent Thailand, probably betting on the Singapore dollar, Malaysian ringgit, Philippine peso or the Indonesian rupiah," he said.
The Philippine peso Asia's best performing currency this year, firmed to 41.28 per dollar, gaining almost 0.8 percent from Thursday's close.
"The market is again cautious about the dollar's performance after the weak US data came out," said a trader in Manila.
Most traders and analysts expect the peso to strengthen further, supported by the country's healthy economic fundamentals and sustained inflows of cash sent back home by millions of Filipinos working overseas.
The dollar hovered near a two-week low against the euro after falling the previous day on a report showing orders for US durable goods rose just 0.1 percent in November, well below forecasts.
Analysts believe the Federal Reserve, which has cut interest rates by a full percentage point since mid-September to try to cushion the economy from a housing downturn, would have to ease policy further next year to contain the housing and credit woes.
The next Fed policy meeting is scheduled for January 29-30. The Singapore dollar hit a two-week high at 1.4469 per US dollar, while the Malaysian ringgit briefly touched 3.3155 per dollar, its strongest level in about two weeks.
The Taiwan dollar rose to a one-week high at 32.465 to the US dollar after the opposition party's presidential candidate Ma Ying-jeou was cleared of corruption-related charges. The Thai baht rose to 33.68 per dollar onshore, up about 0.5 percent from the intraday low of 33.87 on Thursday, when suspected central bank intervention pushed the unit down.
Optimism is rising that the formation of a new government in Thailand after last weekend's election would pave the way for pro-growth economic policies and relaxation of capital controls. "We still like the baht given the potential for a recovery in consumption and investment demand," UBS analysts said in a note to clients.
Meanwhile, the Chinese yuan hit a post-revaluation high at 7.3015 per dollar, extending its gains in the past two weeks to about 1.2 percent as Beijing appeared ready to let the currency rise faster in its efforts to quell inflation. The yuan is on track to gain about 7 percent this year and some analysts expect it to rise a further 7-9 percent in 2008, underpinning investor sentiment in Asia at a time of heightened concerns over the health of the US economy.