Asian currencies mixed ahead of Fed interest rate decision

Asian currencies mixed ahead of Fed interest rate decision

SINGAPORE (Dow Jones): Asian currencies were narrowly mixed late Wednesday as investors refrained from taking large positions before the Federal Reserve makes its decision on interest rates, taming the U.S. dollar's movements.

The Federal Open Market Committee is widely expected to forego another interest rate hike at its two-day meeting, which wraps up Wednesday.

However, the market is wary of more rate tightening in August and will be seeking clues on future Fed moves. The Fed, which has raised rates six times by a total of 175 basis points over the past year, is expected to announce Wednesday that there are still inflationary risks for the U.S. economy, analysts said.

If the Fed maintains the status quo Wednesday, the U.S. dollar may "take a little bit of relief after that," said Steve Brice, a strategist at Standard Chartered Bank.

He added, however, that the pullback in the dollar will be short-lived since it would provide buying opportunities in the U.S. currency versus the Asian currencies, as the focus shifts back to the political and economic uncertainties in the region.

In the Philippines, caution ahead of the Fed's decision tightened dollar liquidity, in turn dragging the peso lower, dealers said.

The dollar closed at 43.10 pesos on the Philippine Dealing System, up from 43.02 pesos at the previous close.

Sentiment has also remained bruised following the central bank's move Monday to replace its single-rate borrowing system with a three-tier system, which effectively amounted to a rate cut. The move appears to counter the central bank's recent rate hikes in its bid to support the flagging peso.

"There are no clear signals on what the authorities' objectives are," said Brice at Standard Chartered. The South Korean won was bolstered by month-end dollar-selling by local exporters.

The won is also expected to be supported in the near-to-medium term by talk that foreign companies need to buy the South Korean currency to pay for their stock acquisitions, following a string of recent alliances between local and foreign companies, Bank of America noted.

The dollar finished at 1,116.20 won, down from Tuesday's close of 1,118.10 won.

With the dollar drifting lower after resistance around 1,122 won capped its recent rally, it is likely to slide toward 1,114 won, as declining short-term momentum indicators support further weakness in the U.S. currency, Bank of America said.

Against the Singapore dollar, the U.S. currency had pierced through S$1.7350 resistance late in the day on U.S. dollar-buying by European institutions, dealers said.

Around 0925 GMT, the U.S. dollar was at S$1.7353, up from S$1.7340 late Tuesday.

The yen's weakness also weighed on the Singapore dollar. Media reports that Fitch IBCA would review its debt rating for Japan - following similarly vague rumors Monday that Moody's Investors Service Inc. would downgrade Japan's rating - had pressured the yen. The dollar was trading at Y105.60, up from Y105.34 late Tuesday in New York.

The Indonesian rupiah was indifferent to a rise in domestic rates, as political uncertainties continued to damp investor interest in the currency, dealers said.

The weighted average interest rate on one-month Sertifikat Bank Indonesia notes rose sharply to 12.33 percent at a weekly auction Wednesday from 11.74 percent last week.

In Thailand, the dollar was at 39.120 baht, down from 39.165 baht late Tuesday, after trading within a familiar range of 39.105 baht and 39.185 baht.

The baht ignored the resignation, which was expected, of Thai opposition New Aspiration Party leader Chavalit Yongchaiyudh and 47 party members from Parliament Wednesday, in a bid to pressure the government into an early dissolution of the lower house.

However, the government retains a quorum and Prime Minister Chuan Leekpai has stated repeatedly that he won't dissolve the house until at least October, after passage of the budget for the year beginning Oct. 1 and other key bills.

The New Taiwan dollar finished lower as month-end demand for U.S. dollars and a 0.7% slide in the local stock market weighed on the local currency, dealers said. The U.S. dollar finished at NT$30.810, compared with Tuesday's close of NT$30.790.