Most emerging Asian currencies slipped on Monday after China's central bank cut interest rates and lowered its daily yuan guidance, moves that bolstered expectations of further easing in the region to tackle slowing growth and deflationary pressure. Weak data in South Korea and Indonesia weighed on their currencies. The People's Bank of China late on Saturday cut its benchmark lending and savings rates by 25 basis points, days before the annual meeting of the parliament, to support the world's second largest economy and ward off deflation.
Activity in China's factory sector edged up to a seven-month high in February but export orders shrank and deflationary pressures persisted, a private survey showed earlier, adding to views that more interest rate cuts will be needed. An official survey, which focuses on larger companies, showed on Sunday that activity in China's factory sector contracted for a second straight month in February.
The yuan fell to its weakest level since October 2012 after the central bank set the daily midpoint at the weakest since early November. "Don't fight PBOC. Join them," said Sean Yokota, head of Asia strategy for Scandinavian bank SEB, in a research note. Some other central banks in Asia such as India, Indonesia, Singapore and South Korea are expected to ease policies, he said. "Short CNY, AUD, MYR, SGD and commodities," added Yokota, referring to the yuan, the Australian dollar, the Malaysian ringgit and the Singapore dollar.
The Singapore dollar fell as much as 0.3 percent to 1.3657 on the US dollar, its weakest since August 2010, amid some expectations that the city-state may ease monetary policy in April to support growth. The ringgit lost ground on stop-loss selling as lower oil prices underscored concerns that sliding crude will hurt Malaysia's current account surplus and widen fiscal deficit. The Indonesia rupiah fell to its weakest since the 1997-98 Asian financial crisis.
The rupiah slid 0.6 percent to 12,995 against the greenback, its weakest since August 1998. Indonesia's manufacturing activity contracted for the fifth straight month in February on lower production and new orders with the headline index hitting a record low, the HSBC Markit purchasing managers' index survey showed. Inflation in February eased more than expected due to falling fuel prices, government data showed.
The rupiah pared some of its earlier losses as the central bank was suspected of intervening around 13,000 to support the worst performing Asian currency so far this year, traders said. South Korea's won fell after industrial output in January posted its worst fall in six years and exports suffered their biggest drop in two years. The won came under further pressure as a weaker yen increased caution over possible intervention by the foreign exchange authorities to check the won's strength versus the Japanese unit.
South Korean and Japanese companies compete against each other in overseas markets in key industries, including electronics and cars. Still, the won pared some of its earlier losses as exporters' demand for settlements prompted traders to cover short positions, traders said.
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