Asian currencies declined on Tuesday as investors turned a little cautious of adding fresh positions after the steep gains in regional currencies this year. The dollar rose 0.3 percent to 110.85 yen, edging away from a four-month low of 110.32 yen set on Monday. "I think Asian currencies are in a phase of consolidation after the significant gains yesterday," said Chang Wei Liang, an FX strategist with Mizuho Bank.
"In the near-term, the downside in dollar-Asia is likely to persist, partly reflecting the positive growth environment," Wei Liang said. He noted the euro was currently providing a tailwind for the Asian currencies. The euro was up 0.03 percent against the dollar at 1.2265. Technical indicators such as the relative strength index (RSI) showed the Indonesian rupiah, Taiwan dollar, Malaysian ringgit, Thai baht and the Singapore dollar are overbought.
After the currencies' solid gains over the past year, some central banks are expected to intervene in the foreign exchange market, weakening currencies to protect exports. Thailand's central bank said late last week it had taken action when the baht was rising rapidly, moving to reduce the impact on businesses from a currency hovering near a 3-1/2 year high against the US dollar.
The Thai baht edged lower, while the South Korean won also declined, dipping nearly a quarter percent on the day. Strong oil prices, however, propped up the Malaysian ringgit on Tuesday. China's yuan slipped despite the People's Bank of China setting its official yuan midpoint at the highest level in more than two years.
On Monday the yuan surged to its strongest in more than two years against the dollar, buoyed by the Bundesbank's decision to include the yuan in its reserves. In Europe, comments on Monday from Ardo Hansson, Estonia's central bank chief and an ECB rate-setter, reinforced the expectations that the European Central bank (ECB) could end its 2.55 trillion euro bond-buying scheme in one move after September.
Some analysts said regional currencies were also affected on the day due to increased expectations the ECB would wind down its monetary stimulus. Historically, the regional currencies have benefited from global liquidity provided by the world's leading central banks. The Indian rupee was down 0.31 percent against the dollar at 63.683, hit by the recent surge in crude oil prices.
India is the second biggest oil importer in the region after China. On Monday, government data showed India's December trade deficit widened to its highest in more than three years as higher import costs for gold and crude oil outweighed rising exports. A Maybank report on Tuesday said rising oil prices and other inflationary pressures could induce India's central bank to hike rates sooner than expected. "The rupee could be a possible outlier amongst Asian synchronous recovery," the report said.
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