Most Asian currencies weakened on Tuesday as fears of an escalation in the US-China trade war drove investors out of riskier, emerging market assets. The US dollar rose on safe-haven buying after Bloomberg reported that the US was preparing to announce tariffs on all remaining Chinese imports by early December if talks next month between presidents Donald Trump and Xi Jinping failed to ease the trade war.
Global equities fell after the report, though most Asian stock markets clawed back early losses in choppy trade on Tuesday. "The willingness on (the) US front to escalate trade tensions instead of adopting a conciliatory tone to de-escalate tensions was interpreted as a dampener on risk sentiment," Maybank said in a note.
In Asia, the Chinese yuan fell about 0.09 percent to 6.969 against the dollar, its weakest level in more than a decade. Markets are closely watching to see if the central bank firmly defends the key 7 level or tolerates a gradual decline through that mark as the trade outlook worsens. The Thai baht fell as much as 0.47 percent to 33.325 per dollar, its weakest level in more than two months. It was on track for its third straight session of declines.
The Indian rupee fell about 0.18 percent to the dollar. The currency is the biggest yearly decliner among its Asian peers. Bucking the trend, the South Korean won edged up, in tandem with local equities.
Thailand's factory output in September fell for the first time in 17 months. Factory output in the country serves as a precursor for the volume of its future exports, which include automobile parts and electronic goods. Thailand's finance ministry said it expects exports in 2018 to rise less than initially expected. However, it maintained its economic growth target, and reiterated that its key interest rate would be steady at 1.5 percent by the end of the year.
Among its Asian peers, the baht has lost the least to the dollar in the year so far. The People's Bank of China (PBOC) set its official midpoint at the lowest level in more than a decade on Tuesday. The currency had concluded trade at a more than 10-year low on Monday.
The yuan's decline has fuelled speculation over whether it will be allowed to test or breach the psychologically important level of 7 to the dollar, which could trigger a spike in capital outflows from the cooling economy. Major state-owned Chinese banks were seen swapping yuan for dollars in forwards on Tuesday, but there was no immediate evidence of dollar selling in the spot market, three traders said.
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