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Asian currencies hit by US Fed decision

HONG KONG: A number of Asian currencies were minor casualties of a US Federal Reserve decision on Wednesday to raise a key interest rate instrument to its highest level in more than four years.

The Fed's decision to raise its Fed funds target rate by 0.25 of a percentage point to 5.75 percent was meant to slow the record-breaking US economic expansion by easing domestic demand, and avert a surge in inflation.

But the move failed to dent confidence in the US economy and the dollar rose, taking small bites out of regional currencies, notably the Japanese yen, the Aussie dollar and the Thai baht.

JAPANESE YEN: The yen lost ground during the week as the dollar rose to a five-month-high on the US Federal Reserve's decision to raise US interest rates, dealers said.

The Japanese currency was quoted at 107.42-45 against the dollar on Friday, compared with 104.85-88 a week earlier.

"The Fed's decision may cool the red-hot US economy, but investors continue to remain bullish on the dollar because of the strong US economy," Bank of Tokyo-Mitsubishi dealer Kiyoshi Kuzuhars said.

The yen recovered moderately toward the end of the week as investors became cautious about a quick rise in the US currency.

Dealers said yen buying was also supported by a surge in Japanese share prices. The key Nikkei stock index briefly touched 20,000 points on Friday for the first time in two-and-a-half years.

AUSTRALIAN DOLLAR: The Australian dollar looks vulnerable next week as it struggles to recover from the hammering it took a week ago when it lost three US cents overnight.

It plunged from 65.05 US cents to 62.35 US cents on Wall Street last Friday/Saturday amid rumours of hedge fund activity and a large-scale switch by investors to the US dollar.

The local unit clawed back some ground during the week on the back of a 50 basis point rise in official interest rates by the Reserve Bank of Australia, while the US Federal Reserve lifted rates by just 25 basis points.

But despite the resulting narrowing of the differential between Australian and US rates, the Australian unit was unable to sustain levels above 64 US cents.

Lewis said next week's outlook for the Australian dollar was shaky, pointing to a possible dip to 62 US cents before any upward move.

"Higher interest rates, the narrowing trade deficit, firmer international economies and higher commodity prices all point to upside for the Ausie," said Craig James, chief economist at Colonial State Bank.

Despite the short-term pessimism the consensus view remains that the Australian dollar will work towards 67-68 US cents by mid-year.

The Australian dollar ended the week at 63.14 cents, down 1.91 US cents on the week.

On the Reserve Bank's Trade Weighted Index the Australian dollar ended Friday at 55.6 down from 56.8 the previous week.

NEW ZEALAND DOLLAR: The New Zealand dollar closed on Friday at 49.46 US cents after tough nights in London and New York. A week earlier it was at 50.07 cents.

"Today has been quite quiet," a dealer said Friday. "It's come off the top with some good selling out of the States and it's traded between 49.30-55 US cents for most of the afternoon".

He expected the currency to show firmness going into the weekend, but for volatility to continue next week in line with its current pattern of significant overnight trading.

HONG KONG DOLLAR: The Hong Kong dollar stood at 7.7802-7.7812 Friday from 7.7797-7807 the previous week.

TAIWANESE DOLLAR: The Taiwan dollar finished at 30.788 against the greenback Thursday, down from the previous week's close of 30.724.

SINGAPORE DOLLAR: The Singapore dollar appreciated to 1.6863 against the US dollar on Friday, from 1.7024 a week ago.

PHILIPPINE PESO: The Philippine currency closed slightly weaker at 40.520 pesos to the dollar on Friday from 40.450 pesos last January 28.

SOUTH KOREAN WON: The won weakened during a shortened trading week to 1,129.70 against the dollar, from 1,120.00 a week earlier as the government maintained a checks on gains that could hurt exports.

INDONESIAN RUPIAH: The Indonesian rupiah ended weaker on Friday at 7,555 to the dollar compared with 7,363 the previous week.

THAI BAHT: The Thai baht weakened late this week against the dollar after the US Federal Reserve raised interest rates, and in line with regional currencies especially the Indonesian rupiah, dealers said.

But the unit rebounded slightly from its week-low point of 37.74 baht to the greenback in light of trading ahead of the Lunar New Year.

The baht closed on Friday at 37.45-55 to a dollar, compared with last week's close of 37.49-53.ÑAFP