Emerging Asian currencies on Friday rebounded as China tried to calm financial markets again, while regional units were set to suffer weekly losses on uncertainties over Beijing's stance on the renminbi's weakness. China's central bank set its daily yuan guidance rate firmer, for the first time in nine sessions, helping onshore renminbi open sharply higher. That supported other emerging Asian currencies such as the Malaysian ringgit and the South Korean won.
The People's Bank of China was also spotted intervening through state-run lenders to support the currency, traders said. The central bank was on Thursday suspected of bolstering offshore yuan after it hit a record low of 6.7600 per dollar. Foreign exchange regulator has ordered banks in some of the country's major import and export centres to limit purchases of dollars this month, three people with direct knowledge said on Friday, in the latest attempt to stem capital outflows.
China's major stock indexes rose after Beijing ditched a circuit breaker mechanism that halted trading twice this week and had been blamed for making market sell-offs worse. "This is only a lull," said Emmanuel Ng, a foreign exchange strategist with OCBC Bank, referring to a stronger yuan midpoint fixing on Friday. "We expect a resumption of upside surprises in the USD/CNY midpoints if broad dollar strength regains traction and data points more economic slowdown," Ng said.
Emerging Asian currencies are likely to weaken as they react more significantly to yuan, he added. Bearish bets on the renminbi hit a near six-year high, denting sentiment towards most other regional units, a Reuters poll of fund managers, currency traders and analysts showed on Thursday. Onshore yuan on Friday initially rose as much as 0.4 percent, helping its regional peers rebound.
But the Chinese currency gave up most of the gains, cutting rises in other emerging Asian units. The Singapore dollar turned weaker. The renminbi has slid 1.4 percent against the dollar so far this week, which would be its largest weekly loss since mid-August in 2015 when China surprisingly devalued the currency. On Thursday, China allowed the biggest fall in the yuan in five months, pressurising other emerging Asian currencies amid fears that the move would trigger competitive devaluation.
The won was the worst-performing regional unit with a 2.1 percent slide as North Korea's nuclear test on Wednesday boosted geopolitical tensions in the peninsula. In retaliation, South Korea unleashed a high-decibel propaganda barrage across its border with the North. The South Korean unit is seen weakening further, not because of the tensions, but because of a slowing China's economy and uncertainty over the yuan, traders said.
"We need to open the door for the yuan's further weakness on PBOC's softer fixing again. That will put more pressure on the won, causing more selling from offshore names," said a foreign bank currency trader in Seoul. The trader said offshore funds, especially macro accounts, sold the won and some long-term foreign investors unloaded the unit around 1,200 per dollar. The ringgit has fallen 2.0 percent so far this week as sliding crude prices added to concerns over Malaysia's falling oil and gas revenues. The country's exports in November rose less than expected. Singapore's dollar has lost 1.1 percent throughout this week, while the Indian rupee has slumped 0.8 percent. The Taiwan dollar has fallen 0.7 percent for the week.
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