Most Asian currencies fell on Monday amid fears of the fallout from lofty oil prices, with investors awaiting for fresh signals from the Federal Reserve's policy review later this week. The South Korean won dropped as low as 1,039.3 per dollar, down about 1 percent as high oil prices raised expectations that firms would have to buy more dollars for imports while local stocks slipped.
The won, Asia's worst performing currency, has lost almost 10 percent versus the dollar so far this year. The Philippine peso, which is also vulnerable to high oil prices, fell as far as 44.60 per dollar, down nearly 0.6 percent. HSBC expects the peso to fall to 47 per dollar by the end of September and ease further to 49 by the end of 2008, rather than 42.2 and 42.4 previously, analysts at the bank said in a note. Oil prices climbed above $136 a barrel as escalating tensions between Israel and Iran countered the impact of Saudi Arabia's promise to pump more oil.
The MSCI index of Asian stocks outside Japan fell almost 0.7 percent. The index has fallen for five straight weeks and is down about 17 percent this year. The Indian rupee lost a tenth of a percent to 42.972 per dollar as the stock market lost ground amid heightened concerns about capital outflows.
Finance Secretary D. Subbarao said on Saturday the central bank was expected to take some more monetary action to counter rising inflation. The central bank had raised its key lending rate by 25 basis points to 8.0 percent this month. The Taiwan dollar inched down to 30.411 per US dollar also pressured by selling of local stocks.
The Singapore dollar pulled back to 1.3670 per US dollar from as high as 1.3632 in early trade, after data showed inflation held at a lower-than-expected 7.5 percent in May, but still hovered at 26-year highs. It had been expected to come in at 7.8 percent.
Singapore's monetary authority will most probably retain its gradual policy tightening stance for the rest of 2008 to accommodate the risks to economic growth, but refraining from tightening further, a Reuters poll showed. The Monetary Authority of Singapore, which uses the currency as its main monetary policy tool, is due to review policy in October.
In April, the central bank shifted up the centre of its secret trade-weighted trading band for the Singapore dollar, to let a stronger currency absorb some of the inflation pressure.
The Thai baht rose to 33.33 per dollar, up almost half of a percent from late Asian trade on Friday. "The baht will move in tight ranges for the day - the market is awaiting for FOMC," said a trader in Bangkok, referring to the Federal Open Market Committee, which is widely expected to hold interest rates steady at a two-day meeting starting on Tuesday. With no rate change so widely expected, investors will look to the statement accompanying the decision for clues on the future course of monetary policy.