The Indonesian rupiah hit a near four-month low on Wednesday, leading a decline among emerging Asian currencies as investors added to their dollar holdings on higher US yields. Spot rupiah fell on importers' dollar demand and its weakness in non-deliverable forwards markets.
The Singapore dollar fell to a near six-week low on slower growth in manufacturing activity in May. The Philippine peso eased as short-term investors covered bearish dollar bets. US Treasury yields on Tuesday rose to their highest in three weeks. Emerging Asian currencies are likely to find some support if the European Central Bank eases monetary policy on Thursday, as such action may spur more inflows to Asia for higher returns.
Such expectations, however, have partly been reflected in emerging Asian currencies, some analysts and traders said. "If it is just a rate cut, there would be no impact on emerging Asia," said Saktiandi Supaat, head of FX research at Maybank in Singapore. "The best scenario for Asia FX is the ECB easing with additional measures, such as some quantitative easing or maybe some targeted to SME lending, to ease credit," he said.
Sources told Reuters last month that the ECB was preparing a package of policy options for its meeting this week, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized enterprises (SMEs). In May, most emerging Asian currencies rose on expectations that easier monetary policies of major central banks would lead more investors to seek higher yields in emerging markets.
Investors were also awaiting US May jobs data due on Friday. The rupiah fell as much as 0.9 percent to 11,890 per dollar, its weakest since February 14, on dollar demand from local importers for payments. The official Jakarta Interbank Spot Dollar Rate, which Indonesia's central bank launched last year in an effort to manage exchange rate fluctuations, was fixed at 11,810 per dollar, slightly weaker than the previous day's 11,806. On Tuesday, central bank deputy governor Perry Warjiyo told Reuters that Indonesia's current account deficit would be around 2.8-2.9 percent of gross domestic product in 2014, compared with 3.3 percent last year.
The peso eased as local investors covered short positions in the dollar, while local companies such as exporters bought the Philippine currency on dips, traders said. The unit is seen staying under pressure for the time being as Asian currencies will likely weaken on higher US yields, traders said. A senior Philippine bank trader said the peso may weaken to 44.20 per dollar. The Singapore dollar fell as much as 0.2 percent to 1.2587 against the US dollar, its weakest since April 25.