Asian currencies started the week lower on Monday as concerns about global growth coupled with US Federal Reserve's hawkish stance hit risk-sensitive assets and boosted the US dollar. Last week, the Fed reaffirmed its plan to raise interest rates by 25 basis points in December, followed by two more potential rate hikes by mid-2019 on the back of an upbeat economy and rising wage pressures.
The dollar, which has also benefited from safe haven bid, added to previous week's gains and its index against other major currencies rose towards a 16-month high on Monday. Aggregate rate differentials are still holding up in favour the dollar, with slight risk aversion providing an additional tail wind, said OCBC Bank in a note.
The Indian rupee, the worst performing Asian currency this year, led losses. The rupee weakened by 0.6 percent as a more than one percent jump in oil prices put the currency under pressure. The rupee had enjoyed some relief during a 20 percent slide in crude prices since early October, but a one percent jump in prices on Monday after top exporter Saudi Arabia announced a cut in supply for December put the Indian currency on the back foot again.
Higher oil prices threaten to spur India's inflation and fiscal deficit. India's October inflation is scheduled to be released later on Monday. A Reuters poll of economists showed inflation in October was likely to have moderated to its slowest pace in 12-months after food and fuel costs fell, keeping the inflation rate below the central bank's 4 percent medium-term target for a third consecutive month.
Higher oil prices also weighed on other major importers, with the Indonesian rupiah and Philippine peso dipping 0.4 percent each. The export-dependent Korean won declined 0.5 percent, in line with the country's KOSPI stock index which traded 0.3 percent lower. The Chinese yuan extended losses, after its worst week since July as soft economic data last week showed signs of falling producer inflation and slowing domestic demand in the face of a bitter trade war with the United States.
The country's Premier Li Keqiang said on Monday Beijing will further open up its economy in the face of rising protectionism, as he headed for meetings with Asia-Pacific leaders in Singapore that are expected to focus on trade tensions. China is the biggest trade partner for several regional economies and any slowdown would hurt them. Among other Asian currencies, the Thai Baht weakened 0.3 percent, while the Malaysian ringgit ticked down 0.1 percent.
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