Most emerging Asian currencies eased on Friday as solid US economic data cemented expectations of a Federal Reserve's interest rate hike in December, hurting regional bonds. South Korea's won hit a 3-1/2-month low as foreign investors continued to sell domestic bonds, while Seoul shares saw outflows amid as President Park Geun-hye faced deepening political difficulties after apologising for letting a friend view her speeches before they were delivered.
The Thai baht slumped as foreign investors kept selling local stocks and bonds. Regional units recovered some earlier losses as the dollar retreated against a basket of six major currencies and China's yuan rebounded. Still, their outlook stayed bearish on solid prospects of a Fed tightening. Upbeat US data on Thursday including jobless claims and pending home sales added to views that the US central bank may tighten monetary policy by year-end.
US Treasury yields rose and most emerging Asian countries government bond yields followed them. "We reiterate our bias for USD strength against most currencies including Asian currencies," Christopher Wong, a senior FX strategist for Maybank, wrote in a note. "The market could be at risk of underpricing the Fed's meetings beyond December," Wong said, adding investors are pricing in US interest rate increase of only 35 basis points for the next 12 months including December.
The third-quarter US economic growth data due later in the day may provide further clues to what the Fed will do. The won on Friday hit 1,147.5 per dollar, its weakest since July 14, while it pared some of earlier losses on exporters' demand for month-end settlements. The South Korean currency led weekly losses among emerging Asian currencies, having fallen 0.8 percent against the dollar so far this week.
Foreign investors sold a nearly 1 trillion won ($874.2 million) worth of the country's bonds in the first 27 days of October, preliminary data from a financial regulator showed. Offshore investors have been cutting South Korean bond holdings in recent months on waning expectations for a central bank interest rate cut and doubts over further appreciation in the won.
Sentiment deteriorated as President Park's popularity plunged to a record low on allegations that an old friend enjoyed inappropriate influence over her. "The issue provided another excuse foreign investors to sell bonds when they need to adjust their global portfolio with US interest rates expected to rise," said Keonhyeong Ha, an economist at Shinhan Investment Corp in Seoul.
"Some long-term foreign investors are banned from investing in countries, which face such scandals," Ha added. A South Korean finance ministry official told Reuters earlier that recent foreign sales of the country's bonds are unrelated to the current political issues. Political crisis often hurt investors' sentiment. Last year, Malaysia suffered massive bond outflows when Prime Minister Najib Razak was hit by a corruption scandal at state fund 1Malaysia Development Berhad (1MDB).
Among other regional currencies, the yuan has eased 0.2 percent on the course for a fourth straight weekly depreciation on fears of capital outflows. The Philippine peso has lost 0.3 percent as foreign investors were net sellers in the local equities over the previous four straight sessions. Malaysia's ringgit has also slumped 0.3 percent as lower crude prices bode poorly for the country's oil and gas revenues. Oil prices were set to report a weekly loss of more than 2 percent due to uncertainty whether Opec would be able to coordinate a production cut big enough to curb global oversupply.