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[SINGAPORE] Uncertainty caused by the US Federal Reserve's decision not to hike interest rates last week sent forex traders running to safer assets Monday, with higher-risk emerging-market currencies taking a hit.
While the announcement was initially welcomed in Asia on Friday, dealers in Europe and the United States were spooked by its citing of global turmoil and China's crisis as a key reason for standing still.
Analysts also said it will prolong the guessing game about when rates will eventually rise, with two bank policy meetings to go before the end of the year.
Emerging currencies rallied last week on hopes the Fed would not move. A rise would usually draw investment from emerging economies for higher returns in the United States.
But comments from bank chief Janet Yellen raised fears about the global outlook, leading to a run out of currencies considered a high-risk bet.
South Korea's won fell 0.89 per cent against the greenback Monday, Malaysia's ringgit was 1.20 per cent down, the Indonesian shed rupiah 0.56 per cent, and the Thai baht was off 0.21 per cent.
Australian, Singapore, Taiwan and New Zealand also saw their respective dollars sink.
The dollar eased to 119.80 yen from 119.98 yen, with the Japanese currency viewed as a safer option than the greenback.
The euro rose to US$1.1318 in Singapore from US$1.1299 in late New York trade Friday but it eased to 135.45 yen from 135.57 yen. Japanese financial markets are closed for three days for public holidays.
"Investors seemingly decided that the Fed's baulk was a sign that things are worse in the world than they actually appear," Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand, said in an e-mail to clients, Bloomberg News reported.
US DATA IN FOCUS
But DBS Bank in a market commentary cited comments over the weekend by two Fed officials that they are still expecting rates to rise this year.
"Debate is now shifting on whether the Fed will hike at the next (policy) meeting on 29 October, or the last on 16 December," it said.
"More clarity is expected from the Fed officials on their decision to stand still in September," said Howie Lee, an investment analyst, with Phillip Futures in Singapore.
"Wall Street will also be keenly looking out for further clues on whether a rate hike is on for December." He said markets are waiting for the release of more US data, including on factory activity and orders for durable goods, both closely watched indicators of the health of the world's biggest economy.
"If the leading indicators... disappoint this week, it could draw further attention to the weak state of the US economy and prove the (policy board) officials' bearishness accurate," Lee said.
DBS Bank also said markets will be watching Chinese President Xi Jinping's visit to the United States from Tuesday.
"Apart from US-China relations, focus will be on how China reassures the world that its economy is still sound after the latest volatility in its stock market and exchange rate," the bank said.
"The verdict remains open if China can win back confidence in its economy and markets."
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