BENGALURU: Asian currencies were mixed on Wednesday and held tight ranges as investors awaited a potentially aggressive interest rate hike from the U.S. Federal Reserve, while the South Korean won weakened most despite central bank's increased hawkish stance.
After a volatile session on Tuesday where most regional stocks and currencies hit multi-month lows, investors are now bracing for the Fed meeting with expectations of an outsized 75 basis point (bp) rate hike.
That has also raised concerns that the extreme policy action could tip the world economy into recession.
"Arguably, the bigger story here is not the 75 bp hike, but rather the way in which it has elbowed out the 50 bp hike that had been boldly pre-announced," ING analysts wrote in a note.
"If the Fed were to go ahead and deliver on that promise of a 50 bp hike, it would cause quite a stir, as it would deviate significantly from the market discount for a 75 bp hike."
Currencies in the region were largely mixed against a strong dollar, which held steady near a 20-year peak.
The Indonesian rupiah, the Philippine peso, the South Korean won and the Thai baht weakened between 0.1% and 0.4%, while the Singapore dollar and Malaysian ringgit each rose 0.1%.
The won weakened for a fifth straight session even as minutes of the South Korean central bank's meeting showed most board members think that while priority should be quelling inflation, the pace of further rate hikes should be carefully managed.
"The Bank of Korea MPC minutes confirmed the increased hawkishness, with two members opinionating that the central bank needs to reduce accommodation quickly," analysts at OCBC Bank wrote.
"This adds to the possibility of a 50 bp hike, especially if the FOMC delivers a 75 bp hike."
The country's finance ministry also said top economic and finance officials plan to meet early on Thursday to discuss the country's economy and the financial market's situation.
The Indonesian rupiah weakened 0.3% after the country's finance minister said the nation has to stick to plans to reduce its fiscal deficit, especially if the Fed raises interest rates more aggressively.
The world's biggest palm oil exporter also issued new regulations on palm oil export taxes, which includes a levy rate cut to accelerate shipments that have struggled to recover after the end of an export ban.
** Indonesian 10-year benchmark yields are up 3.69 basis points at 7.45%
** Top losers on the Jakarta stock index include Suparma Tbk PT down 8.57%; Indika Energy Tbk PT down 6.99%; Radana Bhaskara Finance Tbk PT down 6.99% - Reuters