Most Asian currencies were steady to firmer against the dollar on Wednesday, with the South Korean won outperforming due to month-end flows from local exporters. The Chinese yuan held firm, with investors cautious about possible central bank intervention whenever the currency neared the psychologically-important 6.7 per dollar level.
After holding firm in the first half of August on the back of inflows from yield-seeking investors, most Asian currencies faltered in the second half as upbeat comments from Fed policymakers rekindled bets for a rise in US interest rates and bolstered the greenback.
The focus now is on whether US economic indicators coming up this week, such as nonfarm payrolls data on Friday, will add to expectations that the Fed could raise interest rates as early as September, or cause such bets to be pared back. The South Korean won ended higher on Wednesday as month-end dollar sales by exporters supported the currency towards the close of the session.
The Singapore dollar has underperformed compared with regional peers in August with a monthly loss of 1.8 percent against the US dollar. Another underperformer was the Indonesian rupiah, which is down 1.4 percent against the US dollar in August. The potential for further monetary easing in Singapore and Indonesia in coming months, may have weighed on the Singapore dollar and the rupiah in August, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
"There has been speculation that there could be additional monetary easing in Indonesia, although such views might recede if the rupiah were to fall further," he said. "For Singapore...there is a view that there might be some type of easing bias at the October meeting amid the weakness in the manufacturing sector," Murata said, referring to the central bank's semi-annual policy decision. Data released last week showed that Singapore's factory output in July unexpectedly contracted from a year earlier, heightening concerns about the outlook for the city-state's economy.