Most Asian currencies hit multi-month lows on Monday as risk aversion prevailed amid fresh selling in global equities and an unwinding of yen carry trades. The Chinese yuan and Singapore dollar underpinned by local factors bucked the regional trend and were steady to slightly firmer.
Still, with equity markets down sharply across the region, most Asian currencies succumbed to selling pressure. MSCI's index of Asian stocks outside Japan was down almost 4 percent.
The South Korean won and Indonesian rupiah bore the brunt of the selling, falling as much as 0.9 percent each. The won weakened to around 952 per dollar, its lowest level since late October, and the rupiah hit its weakest level since last July at about 9,260 to the dollar.
The Philippine peso fell as much as 0.36 percent to 48.89 per dollar, its weakest since January 31, although suspected peso-buying intervention by the central bank tempered losses. "The central bank is in the market but it is only offering token amounts and volumes are quite large, so I guess it is feeling the heat," said a Manila trader.
"Right now the move is driven by weakness in the stock market and it is more risk aversion than anything else. It is possible that this is related to an unwinding of yen carry trades because normally if the yen strengthens, the peso strengthens."
In contrast to most of its Asian counterparts, the yen rallied across the board as jitters about tumbling equities encouraged investors to reverse bets against the Japanese unit.
It was last trading at about 115.30 per dollar, up just over 2 percent from levels seen in late Asian trade on Friday. Carry trades, in which investors fund the buying of high-yielding and riskier assets by borrowing low-yielding yen, had driven the yen to a four-year low versus the dollar in late January.
"I think the unwinding of risk positions is not complete yet, so the market is having lots of stop losses being triggered," said Thio Chin Loo, currency strategist at BNP Paribas. "Asian currencies have held up well so far due to a positive correlation with the yen, but Asian stock selling has limited any yen-led gains," she added.
ABN Amro currency strategist Shahab Jalinoos said the won's weakness indicated worries about a slowdown in the United States and global economic growth, but also the unwinding of carry trades. The Malaysian ringgit fell to about 3.5185 per dollar, its lowest in around seven weeks. The Taiwan dollar dipped as much as a fifth of a percent to about 32.94 per US dollar, with comments from Taiwan President Chen Shui-bian about the island's independence weighing on the local currency.
The yuan strengthened as far as 7.7389 to the dollar after the central bank set the daily mid-point at 7.7403, the highest level since China ended the yuan's dollar peg in July 2005. Dealers said comments from Chinese officials reiterating a commitment to a freer exchange rate regime bolstered the yuan.
Central bank governor Zhou Xiaochuan said on Monday that China will consider widening the yuan's daily band, under which the yuan can rise or fall 0.3 percent against the dollar from the mid-point, when necessary but had no timetable for doing so. The Singapore dollar was also one of Asia's outperformers on optimism about the country's economic outlook.
"Some of the real money guys have been buying the Sing and overall there is pressure from the emerging market side for dollar/Sing to go higher," said one local currency trader. "But the fundamental story in Singapore is so strong that for the time being at least the Sing dollar isn't being affected.
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