Yuan hits four-year low; weak risk appetite dents Asia FX

The Chinese yuan briefly touched a 4-1/2 year low on Tuesday due to strong year-end dollar demand, while weak risk sentiment weighed on some other Asian currencies. The yuan eased to 6.4948 versus the dollar at one point, its weakest level since May 2011. The yuan later pared its losses and last stood at 6.4856. Traders reported that the yuan was dragged down by strong dollar demand, as corporates typically need extra dollars for business settlement at the year-end.
Risk sentiment remained weak in the wake of a 3 percent drop in oil prices on Monday, which also weighed on some emerging Asian currencies. There was a mild bid tone to the US dollar against Asian currencies, said Christopher Wong, senior FX analyst for Maybank. The Singapore dollar, South Korean won, the Indonesian rupiah and Indian rupee fell, while the Philippine peso, Thai baht and the Malaysian ringgit rose against the dollar.
Even with the gains on Tuesday, the ringgit remained within its 4.2800 to 4.3240 range seen since December 18.
INDONESIAN RUPIAH With only a few more trading days left in 2015, the rupiah is the second-worst performing emerging Asian currency so far this year, after the Malaysian ringgit. Although the rupiah has climbed about 7 percent in the October-December quarter, the Indonesian currency is seen likely to weaken again next year.
"We expect the rupiah to remain under pressure as both domestic and external challenges remain," said Christopher Wong, senior FX analyst for Maybank, adding that Indonesia's central bank may cut interest rates twice in 2016. Such monetary easing could put downward pressure on the rupiah, which Maybank expects will trade at 14,500 versus the dollar at the end of 2016, he said.
Such a decline would bring the rupiah close to a 17-year low of 14,730 versus the dollar set in September. The rupiah is seen as vulnerable to potential capital outflows due to Indonesia's current account deficit.
THAI BAHT The baht has slipped about 0.9 percent against the dollar in December amid outflows from Thai equities. Foreign investors' net selling of Thai equities in December has reached 35.2 billion baht ($974.80 million) as of December 28.