BENGALURU: Most emerging Asian currencies weakened on Thursday as risk sentiment remained fragile after much-awaited tax reform plans from US President Donald Trump did not boost investor confidence as expected.
Traders were also wary ahead of the European Central Bank's policy meeting later in the day. Trump's proposal to slash tax rates for businesses and on overseas corporate profits returned to the U.S. didn't excite the markets, as it failed to offer details on how it would be paid for without increasing the country's deficit.
Emerging Asian currencies took cues from weakness in broader Asian equities, which pulled back from a near two-year high.
However, the ringgit firmed up against the US dollar. The ringgit was up 0.07% against the greenback to 4.343 from 4.346. Year-to-date, it was up 3.26% to 4.343 from 4.4845.
"Risk-on environment lately has caused most Asian FX to rally but I think the rally is overdone as global risks remain clearly high in both economic and political areas." said Amy Yuan Zhuang, Nordea Markets’ Chief Asia Analyst.
"The tax plan announced yesterday works once again as a wake-up call for the market that the U.S. economic boom may not happen just yet," Zhuang said.
"I don't think this is a game changer for risk reversal, but it definitely kills some of the animal spirit we have seen." Meanwhile, investors will be looking to the ECB's meeting for any clues on whether it will start to pare monetary stimulus in the coming months.
"We don't expect any moves from ECB today, but of course, any underlying change of tones reg the tapering will be negative for Asian FX, in terms of expectation of tighter liquidity" Amy added.
The South Korean won led losses among emerging Asian currencies, breaking a six-day winning streak. The Thai baht weakened to its lowest in two weeks.
The Philippine peso fell to a near three-week low while the Taiwan dollar pulled back from a two-and-a-half year high hit in the previous session and was steady against the dollar at 0405 GMT. The Indian rupee retreated from a twenty-month high hit on Wednesday.
KOREAN WON
The South Korean won was the worst performer, losing as much as 0.6 percent against the dollar, even after the country raised its export outlook this year on the back of stronger than expected quarterly gross domestic product data.
South Korea and the United States agreed on Thursday to take "swift punitive measures" against North Korea in the event of more provocation.
The country has been facing a number of challenges on the political front with recent one being the renewed tension in the Korean Peninsula. In the backdrop of existing political tensions, South Korea is set to elect its new president in May following the impeachment of ex-leader Park Geun-hye.
The won has appreciated around 6.8 percent against U.S. dollar this year. - Reuters
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