Market players expect the Fed to replace "Operation Twist", in which the central bank buys longer dated bonds with the proceeds from the sale of its shorter dated bond holdings, with another bond buying programme. According to a Reuters survey, the median market expectation is that the US central bank will announce monthly Treasury bond purchases of $45 billion to replace Operation Twist, which expires at the end of the year.
If that turns out to be the case, Asian currencies may not react very much, said Saktiandi Supaat, head of FX research for Maybank in Singapore, adding that Asian currencies could slip slightly in the near term. "Dollar/Asia should be moderately higher in the second half of December," he said.
The South Korean won rose to as high as 1,076.0 to the dollar, its strongest level since early September 2011. Inflows into local stock and bond markets gave a boost to the won, although suspected currency intervention by local authorities helped to temper its gains, traders said.
The rupiah retreated against the dollar, pressured by year-end dollar demand from local companies, a trader said. Selling of the rupiah in non-deliverable forwards (NDFs), which are often used by offshore players, eased off somewhat. In one-month NDFs, the rupiah last stood at 9,745 to the dollar, having regained a bit of ground compared to Monday's low of 9,810, which was the rupiah's lowest level on one-month NDFs in more than three years, according to Reuters data. The rupiah showed little immediate reaction after Indonesia's central bank left benchmark interest rates unchanged at 5.75 percent as expected.