Most emerging Asian currencies edged up on Friday as the dollar took a breather from this week's rally, while regional units were set to post monthly losses in May on growing expectations for a US interest rate hike this year. South Korea's won failed to join Friday's rebound by Asian peers and suffered the worst month in six as foreign exchange authorities warned of intervention to curb its rise against the yen.
The Taiwan dollar led regional appreciation, rising after foreign investors were net buyers of local stocks in the previous three days. It pared some gains, as the central bank spotted intervening and there was demand for the US dollar from importers.
The greenback fell against a basket of six major currencies, with a decline versus the yen coming after Japanese Finance Minister Taro Aso said its recent drop had been "rough". The dollar's retreat is seen as transitory and emerging Asian currencies are likely to weaken further in June as the Federal Reserve is expected to raise interest rates this year. Contracts to buy previously-owned US homes rose for a fourth consecutive month in April to a nine-year high, while initial claims for state jobless benefits stayed below 300,000, a threshold associated with a firming jobs market, for a 12th straight week.
"USD strength still has legs. It is still risk-off trades in Asia with high yielders underperforming," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia, in Singapore, referring to higher-yielding currencies such as the Indonesian rupiah. "US economic data shows Q1 weakness was weather-related and the general view expressed by the Fed members still suggests a sooner than December hike is still on the cards." Investors were awaiting revised data for the US first-quarter economic growth due later in the day. A preliminary Reuters poll last week predicted that adjusted first quarter US GDP numbers would be massively revised down and show a 0.7 percent contraction in the first three months of this year.
Sentiment towards most emerging Asian currencies already worsened in the last two weeks, a Reuters poll showed on Thursday. Most regional units were on the course for monthly losses in May, led by the won. The South Korean currency lost 3.2 percent against the dollar this month, the largest monthly depreciation since November, according to Thomson Reuters data. The won came under pressure as the yen slumped to a near 13-year low against the dollar. That drove the won to a seven-year peak against the Japanese unit and spurred currency intervention by South Korea's foreign exchange authorities.
South Korean exporters compete against Japanese rivals for key products such as cars. The Malaysian ringgit followed the won, with a 2.6 percent loss so far this month, as lower oil prices than in April underscored concerns that sliding crude may hurt the country's trade and fiscal account. Malaysia is a net oil exporter. Thailand's baht has fallen 2.3 percent, which would be the largest monthly slide since December 2013. Foreign investors have been net sellers in local bond market so far in May.
Last month, the Bank of Thailand surprised markets by cutting its key policy rate and relaxing curbs on capital outflows. The rupiah has eased 2.0 percent this month on corporate dollar demand and concerns over a slowing economy and current account deficit. Singapore's dollar has lost 1.8 percent as the outlook for the city-state's economy stayed dark on uneven global growth.
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