Asian currencies broadly higher as dollar falters

"The dollar could rise above 112 yen if the Fed raise rates next month.

SINGAPORE: Asian currencies rose on Monday, as traders waited to see whether forthcoming US economic data and comments from Federal Reserve officials will bolster the case for the U.S. central bank to raise interest rates soon.

Most emerging Asian currencies had retreated last week after the minutes of the U.S. Federal Reserve's April policy meeting rekindled expectations for an interest rate hike in June.

The dollar also received a boost in recent weeks as upbeat U.S. economic data and comments from Fed officials were seen as backing the case for the Fed to raise interest rates soon.

Comments from Eric Rosengren, president of the Federal Reserve Bank of Boston, reinforced that message. According to a Financial Times story on Sunday, Rosengren told the paper that conditions for the Fed to raise interest rates are "on the verge of broadly being met". 

More Fed officials are scheduled to speak about the U.S. economy and monetary policy later on Monday.

“We expect more hawkish commentary to be delivered to bolster the U.S. dollar, particularly if April PCE core inflation due 31 May beats market expectations," Gao Qi, Hong Kong-based FX strategist for Scotiabank, said in a research note.

The core personal consumption expenditures (PCE) index, which is the U.S. central bank's preferred inflation measure, had risen 1.6 percent in the 12 months through March, still running below the Fed's 2 percent target.

U.S. interest rate futures are now pricing in about a 1 in 4 chance of the Fed raising interest rates at its policy meeting in mid-June.

SINGAPORE DOLLAR

The Singapore dollar edged up 0.2 percent against the U.S. dollar and showed limited reaction to data showing that Singapore's all-items consumer price index fell 0.5 percent in April from a year earlier.

That was a more moderate decline than what economists had been expecting and also less than the 1.0 percent fall recorded in March.

Given that the Monetary Authority of Singapore (MAS) has already adopted a rather dovish policy bias, the bar for further policy easing seems high, said Trinh Nguyen, senior economist for emerging Asia at Natixis in Hong Kong.

“The MAS already aggressively eased in April by stating that it will not allow for the appreciation of the S$SNEER. And what it will do in October is to maintain that stance should data continue to point to weakness in the economy," Nguyen said.

The latest CPI data also showed that the central bank's core inflation gauge rose 0.8 percent in April from a year earlier, the biggest increase since March 2015.

The MAS manages policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band based on its nominal effective exchange rate (NEER).

It eased policy in April for the third time since January 2015 against a backdrop of low inflation and sluggish economic growth. Its next semi-annual policy decision is due in October. - Reuters