BENGALURU (Sept 17): Emerging Asia currencies declined on Thursday after the Federal Reserve's (Fed) first rate hike in more than three years and a hawkish tone pushed the US dollar to a seven-week high, while regional stocks pared gains.

MSCI's gauge of emerging markets currencies was down 0.2%, paring earlier losses, as the index fell to its lowest level since Aug 21, extending declines to a sixth consecutive session. 

The US central bank's rate hike and hawkish guidance strengthened the dollar to a seven-week high and pushed US yields higher, pressuring regional currencies.

Traders are repricing the interest rate differential story, and the path of least resistance for EM Asia foreign exchange right now is weaker, said Inki Cho, a senior financial market strategist at online trading platform Exness, describing the moves as "orderly but cautious". 

"Position-squaring ahead of the weekend is amplifying the moves, but this isn't panic selling."

Currencies in Indonesia, South Korea and Malaysia declined the most, with the ringgit weakening by as much as 0.4% to 4.098 a dollar, its lowest level since June 26. 

The rupiah declined 0.5% to its lowest in two weeks at 17,765 against the greenback, and the won dropped to a three-week low of 1,384.40 per dollar.     

Regional stocks were muted after trimming some of their earlier gains, with the MSCI EM Asia equities index still inching 0.1% higher.

The index dialled back gains after South Korea's Kospi, which dominates the index along with the Taiwan stock index, erased earlier gains of nearly 1.2% to end flat on the day.

Taiwan's main stock index ended nearly 1% higher.  

Both the chip-heavy indexes rode the AI wave, unperturbed by rising rates, earlier in the session.

Equities in Indonesia and the Philippines added as much as 1% each to the MSCI gauge, and Thai stocks rose as much as 1.4%.

Markets in Asia were hurt over the past month by a strong dollar and rising long-term yields, as investors nursed doubts about whether the Fed would respond to rising oil prices, said Zavier Wong, a market analyst at eToro Singapore.

"Holding rates steady would have escalated that doubt and kept long-term yields climbing. Today's decision puts a lid on it."

However, Malaysian stocks were down 0.3%. 

Southeast Asia's largest budget carrier AirAsia Group Bhd (KL:AAGB) tumbled as much as 21.1% to its lowest level since Dec 28, 2022. The steep losses came after Reuters reported on Wednesday, citing people with knowledge of the matter, that the Malaysian government was in talks with rivals to absorb AirAsia's market share to improve the carrier's financial health.  

Attention is on the Bank of Japan, which is expected to raise interest rates to a 31-year high on Friday and signal its readiness to keep pushing up borrowing costs.

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