Most emerging Asian currencies on Wednesday slid as investors booked profits from their recent gains after hawkish comments from Federal Reserve officials, but doubts over near-term increases in US borrowing costs limited their downside. The Chinese yuan turned down, failing to capitalise on gains made after the country approved the launch of a long-awaited scheme to allow stock trading between Hong Kong and Shenzhen.
South Korea's won lost ground as offshore investors unwound bearish bets on the dollar. The currency came under further pressure as the yen extended losses after Japan's government said it would respond to excessive market moves. The Malaysian ringgit and the Thai baht fell as government bond prices in both markets slid. The Singapore dollar weakened on data showing exports in July tumbled far more than expected.
The weaker tone for regional currencies was set early in the session after Tuesday's comments from New York Fed President William Dudley and Atlanta Federal Reserve Bank President Dennis Lockhart. Dudley said as the US labour market tightens and as evidence of rising wages builds, "we're edging closer towards the point in time where it will be appropriate I think to raise interest rates further."
Lockhart was equally hawkish, saying the US economy is likely strong enough for at least one interest rate increase before the end of 2016, with two hikes a possibility. "Fed remains fickle and changes direction quickly," said Sean Yokota, head of Asia strategy at Scandinavian bank SEB in Singapore.
Yokota advised taking profits from some emerging Asian currencies such as the won, the Indian rupee, the Philippine peso and the Taiwan dollar especially given their recent rallies. He expects regional currencies to resume an appreciation trend as most Asian countries provide higher returns. Indeed, investors have been using extremely low interest rates in developed countries to buy regional assets.
"We still see a longer term trend in hunting for yield and growth, where Asia benefits from more inflows." The won fell as a break of a psychologically important 1,100 per dollar level prompted traders to quickly cover short positions in the greenback.
Investors were also cautious over potential intervention by South Korea's foreign exchange authorities to curb the won's strength. The authorities were on Tuesday suspected of slowing down the won's appreciation as it firmed to 1,092.2 in the previous session, not far from a near 15-month high hit last week, traders said. The ringgit slid as leveraged funds sold the currency in non-deliverable forwards markets. The Malaysian currency also came under pressure as crude prices fell, underscoring concerns over the country's oil and gas revenues.