Yuan hits 6-year low, US rate hike prospects keep Asia FX hostage

yuanSINGAPORE: China’s yuan slipped to fresh six-year lows on Monday as the dollar hovered near a nine-month high on expectations of a US interest rate hike in December, while most emerging Asian currencies took a breather.

Onshore and offshore yuan fell to their weakest levels since 2010, as the central bank set its daily guidance rate at a six-year low, reflecting the greenback’s strength.

“The PBOC is seen strategically managing the yuan’s weakness,” said Jeong My-young, Samsung Futures research head in Seoul, referring to the People’s Bank of China.

“When the dollar is strong, the PBOC tends to actively reflect it on the fixing. When the dollar is weak, the PBOC tends to less aggressively reflect that.”

The renminbi’s weakness weighed on North Asian peers with South Korea’s won and Taiwan’s dollar at their one-week troughs on capital outflows.

The US dollar rose to its highest since Feb. 3 against a basket of six major currencies.

On Friday, San Francisco Federal Reserve Bank President John Williams said that “it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later.”

The remarks reflected the recent hawkish comments from other top Fed officials such as New York Fed chief William Dudley and the Fed’s vice chair Stanley Fischer.

Interest rate futures imply about a 70 percent chance that the Fed will raise interest rates in December.

Taiwan dollar

The Taiwan dollar lost 0.4 percent to 31.750 to the US dollar, its weakest since Oct. 17. Foreign investors turned to net sellers in the local stock market, unloading a net T$1.2 billion ($37.9 million), Taiwan Stock Exchange data showed.

The island’s exporters were barely seen buying the local currency for settlements although the month-end is approaching, currency traders said.

Won

The won slipped 0.2 percent to 1,137.1 per dollar, its weakest since Oct. 17. Foreign investors on Friday sold a net 59.7 billion won ($404.8 million) worth of South Korea’s bonds, according to preliminary data from a financial regulator.

The South Korean currency recovered most of its earlier losses as local exporters bought it for month-end settlements.

The country’s main equity market also saw sustained equity inflows. Foreign investors were set to extend their buying spree in the market to an eighth straight session, absorbing a combined net 1.1 trillion won worth of shares during the period, the Korea Exchange data showed.

“The won is unlikely to follow the yuan’s weakness, given the month-end corporate flows. It is key how much dollar demand will be created from the recent foreign bond selling,” said a senior foreign bank trader in Seoul.

Ringgit

Malaysia’s ringgit barely changed with most government bond prices up as the 2017 government budget was seen alleviating fears of a larger fiscal deficit.

Prime Minister Najib Razak unveiled the budget on Friday, avoiding populist measures and reassuring markets by pledging to cut the country’s fiscal shortfall and debt burden.

“The budget, sticking to fiscal consolidation path, is expected to enhance foreign investor confidence, lower equity
risk premium and provide support to the MYR in the medium term,” said Qi Gao, FX strategist for Scotiabank in a note.