Most emerging Asian currencies are set for another week of losses on growing expectations the US Federal Reserve may signal an earlier-than-expected rate increase next week. The Philippine peso hit a five-week low on Friday after an expected central bank interest rate hike prompted investors to unwind positions built up on expectations of tightening. The Philippine central bank raised its policy and special deposit account rates by 25 basis points on Thursday.
South Korea's won also fell to its weakest in five weeks against the dollar as offshore hedge funds sold it following the central bank chief's concerns over the won's strength against the yen. The currency market ignored the Bank of Korea's decision to keep interest rates steady as widely predicted. Short-term speculators sold the Malaysian ringgit. The Thai baht eased on foreign selling in stock and bond markets.
The dollar hovered near a 14-month high against a basket of major currencies ahead of the Fed's policy review on September 16-17 amid some expectations that the US central bank may indicate an earlier rate hike. With such caution, emerging Asian currencies are likely to ease further next week, analysts and traders said. "Asia FX will see more corrections ahead of the Fed with the dollar seen rising further on caution over a possible signal," said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul.
"By contrast, Asia FX will jump if the Fed provides nothing special. The dollar is seen excessively bought." Sentiment on regional currencies already turned bearish in the last two weeks, a Reuters poll showed on Thursday. So far this week, the South Korean currency has lost 1.4 percent against the dollar as the foreign exchange authorities were earlier this week suspected of intervening to stem its appreciation.
On Tuesday, the won hit a six-year high against the yen, raising concerns that South Korea may lose price competitiveness in overseas markets against Japan. India's rupee has followed the won with a 0.9 percent loss. The Singapore dollar has fallen 0.8 percent, which would be the largest weekly loss since mid-January, according to Thomson Reuters data, on concerns over an economic slowdown in the city-state.
The peso has slid 0.7 percent. The ringgit and the baht have lost 0.5 percent each. China's yuan bucked the trend with a 0.1 percent gain so far this week on improving sentiment toward the currency. The peso lost as much as 0.5 percent for the day to 44.06 per dollar, its weakest since August 8, as investors rushed to cover short positions in the dollar.
But the Philippine currency recovered some of its losses on expectations that the central bank may tighten further as it raised inflation forecasts for 2014-2016. On Thursday, the Bangko Sentral ng Pilipinas raised both its policy rate and the rate on its special deposit accounts, in its most aggressive move to curb inflation amid buoyant economic growth. It was the first time the central bank adjusted both rates at one go. "The market may be positioning for further tightening ahead," said Credit Agricole CIB in a client note.
The won fell as much as 0.5 percent to 1,040.9 per dollar, its weakest since August 8, on selling from offshore hedge funds. The South Korean currency also eased against the yen. Earlier, Bank of Korea Governor Lee Ju-yeol expressed worries about its strength against the Japanese currency. "Should Japanese exporters start marketing campaigns in earnest and really begin to compete with prices by lowering product prices it could affect our exports badly," Lee told a news conference after the central bank's policy meeting.