(Reuters) - Most emerging Asian currencies crawled higher on Tuesday, with the dollar holding steady ahead of a congressional vote on U.S. tax cuts, while the Thai baht softened on expectations interest rates would be kept near record lows.
The dollar index, which tracks the U.S. currency against a basket of six major rivals, was flat at 93.699, as some traders questioned the overall impact of the tax overhaul on the U.S. economy.
Global markets have been buffeted in recent weeks by shifting expectations about President Donald Trump’s ability to push through his signature policy.
“(President) Trump being unable to get his policy through is going to weigh on the dollar positivity and that is going to play favourably to regional currencies,” said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.
The Malaysian ringgit and the Korean won gained as much as 0.2 percent, while the Indian rupee inched up about 0.1 percent.
The Chinese yuan, the Indonesian rupiah and the Taiwan dollar all traded flat, with a slight upside bias.
Along with the baht, the Singapore dollar and the Philippine peso also slipped.
“The year-end position adjustment distortions can run havoc on currency movement and even more so in emerging Asia,” Innes said.
The baht fell as much as 0.8 percent to its lowest since Nov. 17, posting its steepest intraday drop in more than a year.
Thailand’s central bank is expected to leave its benchmark interest rate near record lows on Wednesday, the year’s final review, as economic growth picks up, inflation is still tame and high household debt remains a worry.
“The monetary policy will keep rates on hold and it looks like they will do so in 2018 as well, so this sets up regional cross trades to sell the baht,” said Innes.
Seven of 10 analysts in a Reuters poll who expressed a longer-term view on rates predicted no policy change throughout 2018.
The Indian rupee rose 0.1 percent on Tuesday, after hitting a low of more than 1 percent in the previous session as the Gujarat state election votes were being counted.
“The rupee is being driven by political uncertainty rather than any specific macro drivers after (Prime Minister) Modi had a so-so victory but lost 14 seats,” Innes said.
“I think the political risk will evaporate quickly and the market will refocus on macro drivers, but it may not happen until the new year.”
The rupee, however, pared nearly all of its losses on Monday, as votes progressed and Prime Minister Narendra Modi’s party appeared to win elections in his home state of Gujarat for a sixth term.
Reporting By Christina Martin in Bengaluru; Additional reporting by Chandini Monnappa; Editing by Jacqueline Wong