Most Asian currencies climbed on Tuesday as the dollar came under pressure after a weak US manufacturing report trimmed expectations of a US rate increase next month, a key factor behind the dollar's gains in recent weeks. The New York Federal Reserve said on Monday its barometer on business activity in New York state unexpectedly fell in May, sinking into negative territory for the first time since October, prior to the US presidential election.
Analysts cautioned that the downturn could be a harbinger of possible deterioration in the manufacturing sector. Expectations of a rate increase in June fell to 74 percent compared to 84 percent last week, according to the CME Fedwatch. The Korean won led the gains among Asian currencies, climbing as much as 0.7 percent to a six-week high against the dollar.
Sentiment was also boosted by oil, which jumped 2 percent to its highest in more than three weeks on Monday, after major producers Saudi Arabia and Russia said that supply cuts need to last into 2018. The Malaysian ringgit strengthened for a third-straight day, gaining 0.3 percent, supported by oil's extended gains. The country is one of the biggest oil and natural gas exporters in Asia.
"While it remains to be seen if the crude oil-driven optimism may grant more than transient traction to the emerging markets, still-positive risk appetite levels and a vulnerable greenback may be expected to impart a positive tailwind," OCBC Bank said in a note. In other currencies, the Chinese yuan appreciated for a third-straight day.
China's central bank injected a net 170 billion yuan ($24.67 billion) into money market through open market operations to offset liquidity stress caused by corporate tax payment and maturing repos.
Additionally, net foreign exchange sales by China's central bank fell to the lowest in nearly two years in April as capital outflows eased in the face of strict regulatory curbs and a pause in the dollar's rally. Bucking the trend, the Indian rupee edged lower after three days of gains. India's trade deficit widened for the second straight month in April, on the back of higher crude oil and gold imports, government data showed on Monday.
The Indonesian rupiah was steady at 13,303 against the dollar after the country set a cap on how much foreign cash can be brought in by individuals. The rupiah, which in the past has weakened significantly, has gained more than 1 percent against the dollar so far this year. The non-deliverable outright market expects the currency to depreciate to 13,912 against the dollar in a year. The Thai baht rose for a fourth-straight day on Tuesday, up as much as 0.2 percent.
Large Thai banks announced lower loan rates for some customers on Monday, the same day the central bank said it hoped the pace of lending in 2017 will be significantly higher than it was in the first quarter. Thai lending increased 2 percent in 2016, the smallest rise in seven years. The Bank of Thailand (BOT) said that loans rose 2.8 percent in the first quarter, kept down by uneven economic recovery and high household debt.
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