Most Asian currencies were largely subdued on Monday, with the exception of the won, after North Korea conducted a hydrogen bomb test that raised tensions in the Korean peninsula. North Korea on Sunday conducted its sixth and most powerful nuclear test, which it said was of an advanced hydrogen bomb, prompting the threat of a "massive" military response from the United States if it or its allies were threatened.
The heightened geopolitical tensions had sent investors flocking in early trade to safer assets. The Japanese yen rose against the dollar during the day as investors looked to safe haven-buying, while gold prices rose to a 10-year high. "I think there's still going to be some residual nervousness in the markets as we wait for the US and the rest of the world to respond to North Korea's latest provocation," Khoon Goh, head of Asia research at ANZ Banking Group in Singapore, said.
The South Korean won finished at a more than two-week low against the dollar, although it did recover slightly from its fall during the day. "While some of the weakness we saw in the morning has unwound, I think markets are going to be subdued for a while," Goh added. The Taiwan dollar touched a near 3-month high against the dollar, while the Singapore dollar and the Indian rupee were mostly unchanged. The Chinese yuan on the other hand rose to a more than 15-month high against the dollar after the region's central bank raised its official yuan midpoint to its strongest level since June 2016.
"We think the yuan's upward trend is unlikely to be derailed for two reasons. First, as China is the world's second-largest net creditor, the yuan may actually benefit from safe haven flows. Second, should the North Korea situation worsen, the dollar yield may fall due to risk aversion," OCBC Bank said in a note. The Malaysian ringgit did not trade on account of a national holiday.
The South Korean won fell against the dollar on Monday, but regained some ground. The won lost about 0.8 percent in August as tensions with its neighbour in the north prompted investors to pull money out of the country. South Korean stocks also slid on Monday, with the Korea Composite Stock Price Index (KOSPI) hitting its lowest since August 11. South Korea's finance minister vowed on Monday to implement policies to support financial markets if instability caused by North Korea's latest nuclear weapons test shows signs of spreading to the real economy. "It is likely we could see further foreign investor outflows from South Korea in response to the latest test," Khoon Goh said.
Comments
Comments are closed.