The Chinese yuan led most Asian currencies higher on Tuesday, though a prior day rally sparked by the temporary US-China trade truce slowed on questions over whether the two sides can strike a durable deal. Rising crude oil prices also undermined currencies of key energy importers in the region.
While markets initially applauded the US-China trade truce, the lack of specificity in the temporary agreement struck between presidents Donald Trump and Xi Jinping over the weekend in Argentina has raised concerns about the fragility of the deal.
"Details of the weekend Xi-Trump dinner remain scant from Beijing and the White House. Even within the US administration, we are seeing different interpretations, and attempts to dial back on the expectations of the outcome," said Terence Wu, currency strategist at OCBC Bank.
"Markets now run the risk of China eventually not corroborating the declarations from the US front, and may now be moderating the optimism it drew from the Xi-Trump outcome." The South Korean won tacked on just 0.2 percent, compared with its near 1 percent gain on Monday, while the Taiwan dollar and the Singapore dollar also inched higher.
Global crude oil prices rose for the second successive day on Tuesday and weighed on the Indonesian rupiah , Indian rupee and the Philippine peso - the currencies of three major importers of oil in Asia. Outperforming its regional peers, China's yuan advanced 0.7 percent against the dollar, while the Malaysian ringgit also climbed higher.
Meanwhile, foreigner investors have accelerated their buying in Asian equities this month, data from regional exchanges showed. They purchased $ 511 million worth of equities in Philippines, Thai, Vietnam, Indonesian, Indian and South Korean markets on Monday, adding to their total purchases of $2.5 billion in November.
"We are still favourable on Asian currencies as a whole into the year end, on a strong portfolio inflow momentum, low crude prices and positive sentiments towards EM Asia," said OCBC's Wu. "We expect the Korean won and Taiwan dollar to mirror the yuan movements, while the Indonesian rupiah and Indian rupee may continue to outperform as they remain more attractive in real yield terms."
The dollar index fell nearly quarter of percent on the day due to a slump in US Treasury yields. The yield spread between the US 2-year and 10-year, which is seen as predictor of a US recession, tightened to its smallest since July 2007. However, Saktiandi Supaat, head of FX research at Maybank said such worries are overblown as the 2-year-10-year spread is still in positive territory.
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