Asian currencies slip

Asian currencies slipped against the dollar on Thursday, with the South Korean won leading the retreat after the Federal Reserve took a confident stance on inflation expectations in a boost to interest rate hawks. The dollar's receding yield advantage as other central banks exited, or planned to exit, loose policies have kept its major rivals and Asian currencies supported over recent weeks.
Still, the Fed's optimism about the outlook for the economy and inflation suggested room for a faster pace of interest rate hikes this year, helping push the dollar up. "It's the rebound in the dollar which is driving the weakness in Asian currencies today... and also partly due to some profit taking or retracement after a recent strong run," said Khoon Goh, head of Asia research at ANZ Banking Group.
The dollar index, which measures the greenback against six rival currencies, took a breather from overnight gains to trade marginally lower in afternoon Asian trade. Traders are now looking to looming US data including non-farm payrolls for further catalysts for the dollar.
Some analysts believe the recovery in the dollar could be short-lived. "We think that dollar bears were scratched but not fractured post-FOMC, and all eyes may remain trained on expected monetary policy shifts from other major global central banks outside of the Fed," Emmanuel Ng of OCBC Bank said a note.
"As such, expectations for the 'dollar smile' to kick in may continue to disappoint for now." In Asia, the South Korean won weakened about 0.6 percent after data showed annual inflation in January was the slowest in almost 1-1/2 years, dropping further away from the central bank's 2 percent target.
Yet, South Korea's economy, which unexpectedly contracted in the fourth quarter, received a boost with exports in January up for the 15th straight month. The Indian rupee traded nearly flat after falling as much as 0.2 percent. India's government began unveiling its 2018/19 federal budget on Thursday, aiming for stronger economic growth to win over voters ahead of a national election next year while trying to maintain fiscal restraint.
The Thai baht was largely steady after falling slightly in morning trade. Thailand's central bank said it has eased rules to allow more retail investors to directly invest in overseas securities, a move that comes as it tries to slow a strong baht. Goh, however, still sees upward pressure on the Thai owing to the nation's large current account surplus.
The Indonesian rupiah was slightly weaker, after data showed annual inflation rate in January eased to its lowest since December 2016. Malaysian markets were closed for a public holiday. The peso, which has underperformed the Asian region so far this year partly on concerns over the Philippine's current account deficit and capital outflows, fell 0.5 percent to its weakest level in three months.
However, the Philippine central bank chief has dismissed suggestions there could be a meltdown of the peso, saying the currency was supported by healthy economic fundamentals. The central bank on Wednesday said annual inflation in January may hit the upper end of the government's target range of 2-4 percent for this year, boosted by higher prices of oil and food.