China's yuan was set on Monday to suffer its largest monthly loss since August, when it was devalued by the central bank, as markets wait to hear whether the International Monetary Fund will the currency in its global reserve basket. Most emerging Asian currencies slumped on a strong dollar and weak equity markets, especially in China. Regional currencies were also on course for monthly declines as expectations that the US Federal Reserve will raise interest rates next month gain traction.
The yuan earlier hit a three-month low of 6.3980 per dollar but erased most of its losses in volatile trade. The People's Bank of China set the daily guidance rate at 6.3962, the weakest since August. The renminbi has slumped 1.2 percent against the dollar this month, which would be the largest monthly depreciation since a 2.6 percent fall in August, according to Thomson Reuters data.
The IMF is widely expected to include the yuan in its Special Drawing Rights reserve currency basket. The move is seen as supporting the yuan in the longer term as central banks gradually add yuan assets to their reserves. Still, the move is unlikely to bolster the renminbi immediately, analysts said. "The market will be looking out for details of the announcement, including any requirement for China to refrain from currency interventions," analysts at OCBC Bank said in a note.
China's central bank took various steps including market intervention to curb the yuan's weakness, especially after the yuan devaluation on August 11. On Monday, the currency jumped in offshore trade on suspected intervention. Some analysts expected Beijing to allow further weakness in the currency after it is formally included, given China's slowing economy. That will drag on other emerging Asian currencies, they added. "Should the authorities allow the yuan to be more market determined following SDR inclusion, this could see further weakness given that the PBOC has been easing policy while the US Fed is set to hike interest rates at their next meeting," said Khoon Goh, senior FX strategist for ANZ in Singapore.
"A weaker yuan will have some spillover effects on Asian currencies." Emerging Asian currencies were poised to report monthly losses in November on expectations of a US lift-off at its next policy meeting in mid-December. India's rupee led regional depreciation with a 2.3 percent slide against the dollar this month, Thomson Reuters data showed.
Foreign investors dumped Indian stocks and bonds after Prime Minister Narendra Modi's BJP suffered a heavy defeat in Bihar state's elections, raising concerns the government would struggle to pass policy reforms. The South Korean won slumped 1.5 percent this month as foreign investors sold out of Seoul's stock market. Indonesia's rupiah has fallen 1.2 percent so far November on corporate dollar demand for year-end payments. The Singapore dollar has lost 0.8 percent on the yuan's weakness.
The Thai baht has slipped 0.9 percent, while the Philippine peso ended the month down 0.7 percent. Philippine financial markets were closed for a holiday on Monday. Investors are keeping an eye on Fed Chair Janet Yellen's speech on Wednesday and October US jobs data on Friday for any clue on US monetary policy. In contrast, the European Central Bank is expected to add monetary stimulus at its Thursday meeting. That may limit downside in emerging Asian currencies. Malaysia's ringgit bucked the regional depreciation trend in November with a 0.8 percent gain. The ringgit rose as a rebound in crude oil prices eased some concerns over Malaysia's falling oil and gas revenues. The currency also drew support from an agreement by the debt-ridden state fund 1Malaysia Development Bhd to sell its energy business to China General Nuclear Power Corporation in a $2.3 billion cash deal. China will also buy more Malaysian government bonds, Premier Li Keqiang was quoted as saying.
Comments
Comments are closed.