BENGALURU- Asian emerging market currencies fell on Friday as the US dollar and Treasury yields strengthened ahead of the Federal Reserve meeting next week, while regional equities were mixed, with Indonesian stocks losing ground.
Shares in Manila extended their declines for the third straight session, slipping as much as 0.9 percent to a one-month low.
Equities in Shanghai fell as much as 2 percent, a day after China pledged an increase in budget deficit and a more flexible monetary policy to support the economy, while the yuan was largely flat.
South Korean shares were set for a weekly gain of nearly 3 percent, overshadowing an around 1 percent loss last week following the surprise martial law declaration by President Yoon Suk Yeol.
The MSCI emerging markets currency index was largely flat.
The Philippine peso Thai baht and South Korean won dipped between 0.2 percent and 0.3 percent.
The Indonesian rupiah weakened 0.5 percent to hit a four-month low, prompting the central bank to intervene in the foreign exchange market to maintain confidence in the rupiah.
The US dollar climbed to 107.05 for the first time since Nov. 26, and hit its highest point in more than two weeks.
Some softness in US producer price inflation on Thursday supported market convictions of 25-basis-point cut from the Fed next week, despite a stronger headline figure.
The market will be watching out for the consensus between the Federal Open Market Committee (FOMC) members and if it will change to a little bit more dovish tone which might result in a slight reversal for the US dollar, said Junvum Kim, a sales trader at Saxo Capital Markets. “EMFX has recently gained sensitivity to fluctuations in the US real yields. We believe this process can drag more vulnerable EM currencies to weaker levels, depending on markets’ perception of US growth (and Fed reaction function),” Citi analysts wrote.
