Asian currencies weakened against the dollar on Wednesday with Indonesia's rupiah touching a near three-year low and China's yuan hovering around 15-month lows as Turkey's shaky financial markets bruised investor appetite. The Turkish lira, which plunged to record lows on Monday, has clawed back some of its losses but concerns that other emerging markets might face a similar fate continue to weigh on sentiment.
The US dollar held firm near a 13-month high against a basket of major currencies on increased demand for safe-haven assets. The dollar index rose 0.1 percent to 96.793. The Chinese yuan weakened as much as 0.37 percent to 6.908 as a slew of recent disappointing economic data hurt sentiment. "I think the common denominator for fragile countries is not that they are emerging markets, but rather they have unresolved disputes with the US president," said Taye Shim, head of research at Jakarta-based Mirae Asset Sekuritas.
"I think it's going to be very fragile going forwards and investors will need to recalibrate their investment agenda." China's trade dispute with the United States is set to intensify next week with both sides planning to hike tariffs on more of each other's goods, threatening to pile more pressure on China's already slowing economy. While US tariffs have had little effect on China's trade and inflation so far, business surveys point to weakening export orders and there are concerns that a protracted trade war could lead to a sharper Chinese slowdown than expected a few months ago.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8856 per dollar, its weakest level since May 12, 2017, 161 pips or 0.23 percent weaker than the previous fix of 6.8695. Singapore's dollar weakened 0.19 percent while the Thai baht traded 0.3 percent weaker. India and South Korean markets were closed on Wednesday for public holidays.
Indonesia's rupiah, which has been under pressure over escalating concerns about the economy's trade deficit, weakened as much as 0.49 to 14,646, as the country awaited the central bank's rate decision. Southeast Asia's largest economy posted a large trade deficit in July as imports surged more than expected, souring sentiment. "It is naive to believe that Indonesia or emerging markets as a whole will see significant improvement in the trade balance from here," Shim added.
On Tuesday, Finance Minister Sri Mulyani said the government will impose a 7.5 percent import tax on about 500 goods that could be produced locally. Bank Indonesia is expected to keep its benchmark interest rate unchanged despite a plunge in the rupiah, a Reuters poll showed. Additionally, Indonesia's central bank intervened to defend the rupiah on Monday and again on Tuesday conducted auctions for cheaper foreign exchange swap contracts to reduce hedging costs.
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