The South Korean won led gains among Asian currencies on Friday, as the dollar lost steam after a surprisingly weak reading of US factory activity cast some doubt on the strength of US economic growth. Most Asian currencies edged higher against the dollar, with the won gaining 0.5 percent and outperforming its peers. The Malaysian ringgit underperformed and fell 0.3 percent. The dollar retreated after a gauge of US manufacturing released on Thursday showed that factory activity contracted in August for the first time in six months.
The focus now is whether US nonfarm payrolls data later on Friday will add to expectations that the Fed could raise interest rates in coming months, or prompt a scale back in such bets. Investors are likely to remain on guard for a possible Fed rate hike this year even if nonfarm payrolls growth comes in slightly below market expectations, said Kota Hirayama, senior economist for SMBC Nikko Securities in Tokyo.
"If we get a number somewhere around 150,000, the market's rate rise expectations are unlikely to change much and won't go away," Hirayama said, adding that such an outcome might weigh on risk sentiment somewhat. The median market forecast is for US nonfarm payrolls to have increased by 180,000 in August, according to a Reuters survey of economists.
The ringgit has declined 1.7 percent this week and underperformed its peers, as falls in global oil prices underscored worries about Malaysia's oil and gas revenues. Global oil prices have tumbled more than 8 percent this week. "Its underperformance is mainly due to the fall in oil prices," said Khoon Goh, senior FX strategist for ANZ in Singapore, referring to the ringgit. The dollar could breach key technical resistance versus the ringgit at 4.1050 if the US jobs data comes in strong, he added.
Sentiment toward emerging Asian currencies weakened in the last two weeks after hawkish comments from Fed officials rekindled bets for US interest rates to rise this year and gave a lift to the dollar. Market positioning in the Chinese yuan was estimated to be the most bearish since late July, according to the Reuters survey of 18 fund managers, analysts and currency traders conducted from Tuesday through Thursday. Bullish bets on the Indonesian rupiah were the smallest since late May, when rupiah sentiment had been bearish.