Fed rate hike doubts support Asia FX for week

By Jongwoo Cheon

SINGAPORE (Reuters) - Most emerging Asian currencies rose on Friday to see weekly gains on growing expectations the U.S. Federal Reserve will delay interest rate hikes after soft economic data.

Malaysia's ringgit hovered near a two-week high as the economy grew at a faster-than-expected pace in the first quarter and its current account surplus almost doubled.

The South Korean won turned higher on stop-loss dollar selling after the central bank kept its policy rate steady as expected and Governor Lee Ju-yeol dented expectations of further easing soon. Exporters also bought the currency for settlements.

The Indonesian rupiah advanced with a higher-than-expected trade surplus in April. The currency also found support on catch-up buying after Thursday's local holiday when its Asian peers rose.

The U.S. dollar stayed around a four-month low against a basket of major currencies as softer-than-expected U.S. producer prices deepened concerns over slowing growth in the world's top economy. The inflation data came a day after April's disappointing retail sales numbers.

"There is some pull back in shorting Asian currencies, and much of this behaviour in markets is due to the rates lift-off being delayed," said Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur.

"It is time to take stock that USD's upward trajectory perhaps has come to an end."

Most emerging Asian currencies have eased so far this year on concerns that the Fed's eventual rate hike will undermine the appeal of the region's higher yields, and due to a slowdown in China's economy.

Sentiment towards regional currencies has deteriorated in the past two weeks as China's economy continued to lose momentum, a factor worsened by the global bond rout, a Reuters poll found on Thursday.

WEEKLY GAINS

Most emerging Asian currencies, however, were set to see weekly gains, led by the Taiwan dollar.

The island's currency has advanced 1.0 percent against the U.S. dollar so far this week, Thomson Reuters data showed. Foreign investors bought a combined net T$8.0 billion worth of local stocks in the first four days of the week, according to the Taiwan Stock Exchange data.

The ringgit has risen 0.7 percent against the dollar so far this week, according to Thomson Reuters data. Earlier on Friday, it rose to 3.5600 per dollar, its strongest since May 5.

Oil prices were set to end the week stronger, further supporting the ringgit. Higher crude prices eased concerns that fiscal and trade accounts of Malaysia, a net oil exporter, may deteriorate on lower oil prices.

India's rupee has gained 0.5 percent on solid local shares and a weaker greenback.

The Singapore dollar has also appreciated 0.5 percent, while the rupiah has advanced 0.4 percent.

Thailand's baht bucked against the regional appreciation with a 0.4 percent loss so far this week. Foreign investors continued to sell local bonds as top policymakers said they preferred a weaker baht.

Investors were awaiting U.S. data such as April industrial output due later on Friday to check if the economy has recovered growth momentum.

Emerging Asian currencies are likely to see corrections if upcoming data bring forward the expected timing of Fed rate increases.

Still, some analysts said only solid data is likely to restore such expectations, given recent dismal indicators.

"It's about timing, as always. It is still too early to get back on the long USD trade," said Sean Yokota, head of Asia strategy for Scandinavian bank SEB in Singapore.

(Additional reporting by Swati Bhat in MUMBAI; Editing by Eric Meijer)