The high-yielding Indonesian rupiah and Philippine peso rose on Friday as risk appetite improved, but the gains were limited by the dollar's strength after the Federal Reserve restated its worries about inflation. Most other Asian currencies rose against the US dollar.
The rupiah rose as far as 9,030 per dollar, up more than 0.4 percent from late Asia trade on Thursday, while the peso hit 46.205 per dollar, up a third of a percent. Analysts remain bullish about the underlying strength in the high-yielding currencies, but some are wary about the near-term risk after the recent volatility sparked by concerns about rising global interest rates and fears of an unwinding of carry trades.
The peso and rupiah benefit from carry trades, in which investors borrow low-yielding currencies, typically, the Japanese yen, to fund investments in assets that yield higher returns.
"Buying carry trades on dips is the preferred strategy, but this week's price action underscored that being nimble is also recommended," said Sue Trinh, currency strategist at RBC Capital Markets. The Singapore dollar hit 1.5314 to the US dollar, up a nearly third of a percent and hitting a three-week high. A trader in Singapore said some investors shed long US dollar positions to stop losses.
"Those who were long (on the US dollar) thought that the 1.5350 level would not be broken, the market is having a lot of stop losses, some of them are cutting positions," she said. The dollar extended gains against the yen having risen on Thursday after the Fed kept interest rates unchanged as expected, but repeated it was concerned about inflation.
The Malaysian ringgit jumped more than half of a percent to 3.449 per dollar, a one-week high, encouraged by the latest official comments suggesting the authorities were comfortable with a stronger ringgit. Malaysia's Trade Minister Rafidah Aziz said on Friday that a firm ringgit has not hurt the country's exports, and local firms are taking the currency's strength in their stride.
Elsewhere, investors are watching where Indonesia's interest rate policy will go after central bank chief Burhanuddin Abdullah said that the bank felt there was still room to cut rates. "It sounds as though Bank of Indonesia will cut 25 basis points to 8.25 percent next Thursday as CPI for June is somewhere around expectations," Sean Callow, currency strategist at Westpac, said in a research note.
Before the central banker's comments, many analysts thought the bank would keep its benchmark rate unchanged at 8.5 percent at its policy meeting next Thursday out of worry that aggressive cuts might spur capital outflows. The recent bout of weakness in the rupiah has left the currency down against the US dollar so far this year.
The latest Reuters poll showed that Indonesia's annual inflation likely eased to 5.85 percent in June from 6.01 percent in May. The figures are due on Monday.
The Chinese yuan hovered near 7.6170 per dollar, off the post-revaluation high of 7.6135 hit on Wednesday. The pace of yuan appreciation has accelerated, albeit moderately, since its daily trading band was widened to 0.5 percent from 0.3 percent on May 18.