The Philippine peso fell as much as 0.2 percent on Thursday to its lowest level in nearly three months, ahead of a central bank meeting later in the day at which policy was expected to remain unchanged. Most other emerging Asian currencies traded within a narrow range, as oil prices struggled to claw up from a 10-month low hit overnight on concerns over a supply glut and falling demand.
The peso is on track for its longest streak of losses since November 2016. The central bank is widely expected to leave interest rates unchanged at its policy review, with any action likely to come after its new governor assumes his post next month. "The peso remains broadly stable despite some softness in recent days. This should buy the central bank some time to monitor inflation dynamics, and any spillover impact from the Fed's rate hike (last week)," Mizuho Bank said in a note.
"The upshot is that the central bank is expected to stay put for the time being, with any surprise on the hawkish side likely to induce peso gains," Mizuho added. Sentiment also has been affected recently by fears that Islamic State, on the backfoot in Iraq and Syria, is trying to set up a stronghold in the Muslim south of the mainly Roman Catholic Philippines that could threaten the whole region. The peso has been among the worst performerming currencies in Asia this year, slipping more than 1 percent against the dollar.
OTHER ASIAN CURRENCIES For emerging currencies in general, a lingering worry has been the recent strengthening of the dollar, which held steady below a one-month high against a basket of currencies on Thursday on bets that the US central bank will increase rates once more later this year.
The US dollar held steady against a basket of six major currencies, having retreated marginally from a one-month high of 97.871 set earlier during the week. Risk sentiment among Asian currencies was also affected by oil prices, which ended down more than 2 percent on Wednesday after hitting a 10-month low in volatile trade, as growing US production and reduced Chinese refinery activity fed mounting concern over the stubborn global crude glut.
"The risk of oil price declines entrenching low inflation expectations has increased starkly, and could possibly throw a spanner in the Fed's policy tightening plans," said Mizuho Bank in a note. Overall, regional currencies were mixed, though most had small spikes. The Korean won was among the top gainers, climbing as much as 0.5 percent against the dollar after seeing some support from local exporters.
The Tawain dollar edged up after local stocks rose to their highest in 27 years, buoyed by technology shares. The yuan weakened marginally against the dollar after the central bank fixed its official midpoint at a fresh three-week low, while corporate demand for the greenback also weighed on the Chinese currency. "We stay vigilant on a wide gap between onshore spot and fixing. If the dollar weakens broadly, the elevated spot-fixing spread will spur a selloff in the dollar as what happened in late May," said Qi Gao, FX Strategist at Scotiabank. The Indian rupee was little changed against the dollar after minutes from Reserve Bank of India's (RBI) last meeting showed it wants more evidence that inflation has sustainably fallen below its target before deciding whether to lower interest rates.