Asian currencies rebounded on Wednesday after a deep Federal Reserve interest rate cut boosted interest in risky assets, but investors awaited further US policy easing to head off a recession. Regional currencies have been hit in recent sessions by heightened fears of a sharp US economic downturn, which has prompted investors to dump Asian stocks.
The Indonesian rupiah hit a three-week high at 9,370 per dollar, up 1.3 percent from late Asian trade on Tuesday. "The rupiah follows regional currencies as well as the other emerging currencies. The Fed rate cut is positive for sentiment," said a trader from Jakarta.
The Singapore dollar briefly rose to 1.4345 to the US dollar, up about 1 percent from late Asian trade on Tuesday, as data showed December inflation accelerated to 4.4 percent, more than a 25-year high, on rising food and transport costs.
Like most Asian policy makers, the Monetary Authority of Singapore (MAS) has to tighten monetary policy to rein in inflation, but a surprise contraction in the economy in the fourth quarter has raised some doubts on its outlook.
The Philippine peso hit 41.25 to the dollar, up about 0.8 percent from Tuesday's close and prompting the central bank to step into the market to smooth the peso's volatility.
"They (central bank) are buying dollars to smooth the volatility, but I guess they just don't want the peso to strengthen too fast," said a Manila-based trader. The South Korean won rose as far as 945.8 per dollar, up about 0.8 percent from late Asian trade on Tuesday and rebounding from a 15-month trough hit a day earlier.
The Fed on Tuesday cut its benchmark late meeting on January 29-30. The move left the fed funds rate at 3.5 percent, below the European central bank's 4.0 percent and lower than interest rates in most Asian countries. For example, Indonesia's key interest rate stands at 8.0 percent while that in the Philippines is now at 5.25 percent.
MSCI's measure of Asian stocks excluding Japan jumped 4.8 percent on Wednesday, recovering from sharp sell-offs in recent sessions. Still, analysts cautioned that the gains in Asian currencies may not be sustained, although the Fed rate cut may help soothe jitters over prospects of a sharp US recession. The market expects the Fed to cut interest rates by at least 25 basis points next week, which could put more downward pressure on the dollar against major currencies.