SINGAPORE: Asian currencies were mostly unchanged on Monday, barely reacting to a decline in China's manufacturing data, as regional stock and currency markets awaited a mid-week US Federal Reserve meeting that could finally indicate the timeline for scaling back its monetary stimulus.
The Taiwan dollar gained 0.2 percent, but that was the exception in an otherwise listless Asian trading session. The Indonesian rupiah remained on the backfoot, with stocks there down about a percent, although the central bank was suspected of intervening to prop up the currency with dollar supplies.
Stock markets across Asia were weak, possibly as investors booked their year-end profits earlier than usual and sought to be conservatively positioned heading into the Fed's meeting.
The odds still point to no major policy change when the Fed meets Dec. 17-18. But most of the recent US domestic economic data suggests the beginning of the end of the Fed's massive bond-buying program is coming sooner than later.
For Asian markets, worried that the Fed's taper will revive the pre-September heavy selloff and capital flight from the region, the question is not just about whether the Fed announces a reduction in asset purchases in December or January, but also about the accompanying policy message.
The central bank meeting marks Ben Bernanke's last press conference as Fed chairman and he is expected to stress that interest rates will remain low for long, irrespective of when the quantitative easing programme, or QE, is shelved.
Strategists mostly expected markets such as Indonesia's and Korea's that are highly correlated to dollar policy, also referred to as high beta markets, will recover once investors were convinced that the Fed truly was committed to keeping policy rates low for an extended period.
"Dovish tapering will generate a short-term market sell-off, but the surprise will be how quickly high beta currencies bounce back, especially outside of G10," wrote Citi strategist and managing director Steven Englander, in a note to clients.
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