Most emerging Asian currencies turned weaker on Friday as investors awaited US nonfarm payroll data and potential clues to whether the US Federal Reserve could soon taper its monetary stimulus. Earlier, most regional units rose as investors cut long dollar positions expecting that possible disappointment in US non-farm payrolls (NFP) data may lead the Fed to maintain its $85 billion per month bond-buying programme.
But emerging Asian currencies failed to keep earlier gains on profit-taking and falls in regional stocks. Japanese shares had their worst week in two years. The South Korean won ended local trade softer on foreign investors' heavy share selling after hitting a near four-week high. The Malaysian ringgit turned weaker on profit-taking and weaker trade data.
"Emerging Asian currencies are likely to stay softer amid higher volatility. There are too many bearish factors and we need to take a defensive stance," said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul. "The Fed exit talk can hurt markets any time. In addition, investors stay concerned over risky assets on doubts over 'Abenomics' and a softer China economy," Park added.
Sentiment for most emerging Asian currencies had already turned more bearish over the last two weeks on worries over the Fed scaling back its stimulus, according to a Reuters poll on Thursday. The current market focus is US May jobs data. Most emerging Asian currencies have depreciated so far this year partially due to speculation that the Fed may roll back quantitative easing as the economy recovers.
The Singapore dollar has gained 1.6 percent against the US dollar so far this week, while the Taiwan dollar has strengthened 1.2 percent, according to Thomson Reuters data. "A softer NFP result of 130,000-140,000 should see dollar/Asia lower," said Jonathan Cavenagh, a senior FX strategist at Westpac in Singapore. The won closed the local trade weaker as foreign investors reported their largest daily selling of stock in nearly two years, dumping a net 932 billion won ($835 million) worth of stocks on the main exchange. This was the largest net selling by foreigners since August 10, 2011, according to the Korea Exchange.
Initially, the South Korean currency gained as much as 0.7 percent to 1,107.6 per dollar, the strongest since May 14, after North and South Korea announced on Thursday they were planning to hold talks, signalling attempts to repair ties that have been ruptured for months. Foreign net investment in South Korean bonds rose by 1.4 trillion won in May despite concerns over the Fed's policy shift, data showed, supporting the won. "Despite the dollar's weakness, offshore funds did not buy the won much. Weaker stocks prompted dollar-short covering," said a foreign bank trader in Seoul.
The ringgit started the day firmer but it turned weaker as investors covered dollar short positions to stop losses. Hedge funds also sold the Malaysian currency, traders said. The currency came under further pressure from data showing the country's exports unexpectedly fell in April from a year earlier and its trade surplus hit a 16-year low. The Taiwan dollar gained as demand from foreign financial institutions prompted short squeezes among local interbank speculators. Domestic exporters also chased the island's currency, traders said. But the central bank limited its upside, having some state-run importers buy US dollars, traders added.