Most emerging Asian currencies rose on Wednesday as disappointing US services sector data eased expectations of an immediate interest rate hike by the Federal Reserve, helping investors keep seeking higher yields in the region. "A September hike is now off the table and December is uncertain too. So the risk is on," said a senior Malaysian bank currency trader in Kuala Lumpur.
The Institute for Supply Management's data showed on Tuesday that the US service sector last month grew at its slowest pace since early 2010 with its non-manufacturing purchasing managers' index far short of expectations. The service sector makes up more than two-thirds of the US economy. South Korea's won and Taiwan's dollar rose to hover around their strongest levels in more than one year on capital inflows. The Thai baht gained as foreigners resumed buying local bonds.
The Malaysian ringgit advanced as traders cut holdings in a tumbling dollar. Investors were awaiting the central bank monetary policy decision due later in the day, while Bank Negara Malaysia is expected to keep its benchmark interest rate unchanged. "The weak ISM (data) and the NFP from last Friday clearly lowered chance for September hike," said Nordea Markets' senior analyst Amy Yuan Zhuang in Singapore, referring to the August non-farm payrolls, which missed expectations. She said possibilities of a December tightening also fell "a little".
"In the short-term, Asia FX may be attractive. There is not much big downside for Asia FX in the near term as long as the CNY is steady. But no hike in September is already priced in to some extent." The Chinese yuan strengthened for a second consecutive day after the central banks set its daily guidance rate firmer. The won rose as much as 1.2 percent to 1,092.4 per dollar, compared with a near 15-month high of 1,091.8 hit on August 10. Foreign investors bought South Korea's stocks and bonds, while local exporters were lined up to purchase the won for settlements ahead of a long holiday next week.
The South Korean currency pared some of its earlier gains as finance ministry officials said the authorities are ready to take action in case of excessive currency movements. The warning boosted caution over possible intervention to stem further strength in the best-performing emerging Asian currency so far this year. Domestic importers bought dollar for payments on dips, limiting the won's strength. The baht rose as foreign investors were net buyers in Thailand's bond market on Tuesday.
The government bond prices rose with foreign demand. Currency traders scrambled for the baht to unwind bearish bets in the currency. The Taiwan dollar advanced 0.7 percent to 31.185 per US dollar, its strongest since August 11 when the island's currency hit a 13-month peak. Foreign investors continued to buy local stocks after purchasing a combined net T$9.3 billion ($297.8 million) in the first four sessions of this month, the Taiwan Stock Exchange data showed. The Taiwan dollar pared some of its earlier gains as importers bought the greenback around 31.200-31.400. The central bank has not yet spotted intervening to curb the Taiwan dollar's strength, traders said.