The dollar index which tracks the greenback against six major currencies, was up 0.1 percent at 92.243. "The reason for caution in Asian currencies is understandable. For the third straight year, the FOMC meeting in September signalled a rate hike for December, right after markets turned dovish on the Fed," said Philip Wee, senior currency economist for DBS Bank.
"Last year, we had the 'Trump rally' into the December hike. This year, we have the Fed starting the unwinding of its balance sheet" The dollar-rupee pair breached past 65 level and the dollar-rupiah pair climbed above 13,300 level, since the Fed meeting. Chang Wei Liang, FX strategist at Mizuho Bank, said S&P's downgrade of both China and Hong Kong late last week also added to the cautious mood in Asia.
S&P Global Ratings downgraded China's sovereign credit rating on Thursday, saying the country's attempts to reduce risks from its rapid buildup in debt are not working as quickly as expected. A weaker fixing of the official yuan midpoint by China's central bank countributed to a quarter percent fall in the yuan on Monday to near four-month lows, though traders do not think it will be allowed to slip much more ahead of the highly sensitive Communist Party Congress in mid-October.
The Singapore dollar also slipped after the country's consumer price index rose less than expected in August. "With inflationary pressure remaining benign and well with in comfort zone of the central bank, the authority will most likely stand pat, maintaining the current zero appreciation of the SGD NEER policy stance, in the upcoming October review," DBS said in a note.
The South Korean won and the Philippine peso led regional gains on the day. Analysts said M&A related inflows supported the peso against the dollar. The Indian rupee was up 0.05 percent at 64.7600 per dollar. Having fallen about 0.7 percent since the Fed's meeting, the rupee is the biggest decliner among Asian currencies in that period. Analysts said the rupee will continue to decline in the near term due to its deteriorating current account and fiscal deficits.
India's current account deficit widened to a four-year high of $14.3 billion in the June quarter, according to the central bank data. India's government is considering a plan to loosen its fiscal deficit target to enable it to spend up to 500 billion rupees ($7.7 billion) more to halt an economic slowdown, two government officials with direct knowledge of the plan said on Thursday.
"The fiscal deficit is a cause of concern," said Mizuho Bank's Liang. "If the fiscal deficit deteriorates, then RBI will probably not have as much room to ease, on fears of inflation pressures being revived."
Copyright Reuters, 2017