Most emerging Asian currencies on Wednesday were shackled by underlying doubts about whether the United States and China could iron out their differences and strike a lasting deal to end their year-long trade war. Surveys this week showing faltering global manufacturing activity underlined the anxiety about the broadening fallout of the Sino-US dispute, one reason why trade-dependent South Korea earlier in the day cut its growth and export targets.
That sent the Korean won, the worst performing emerging Asian unit this year, skidding to a near two-week low. Investors had initially cheered a trade truce agreed between US President Donald Trump and his Chinese counterpart Xi Jinping at the G20 summit in Japan over the weekend.
Yet, markets were wary about the prospects of a lasting deal, after the last major round of Sino-US trade talks collapsed in May. "The prolonged trade war is now on ice after both sides agreed to a truce, but the market has seen this before and based on the aggressive demands from the United States, it could unravel once again," Alfonso Esparza, senior market analyst, at OANDA said in a client note.
The Chinese yuan weakened to a one-week low, while the Taiwan dollar slipped 0.1%. The yuan was under pressure after Chinese Premier Li Keqiang's dovish remarks on Tuesday raised speculation of further policy easing to help a slowing economy. The Thai baht firmed 0.4% and led gains.
The baht has vastly outperformed its peers this year, up 6.5%, after also topping its emerging Asian peers in 2018. The Bank of Thailand has expressed concern over the strength of the currency, saying it may not be in line with economic fundamentals. The extended gains in the baht suggest that flows remain favourable, Stephen Innes, managing partner at Vanguard Markets Pte Ltd said.
"Keep in mind that Thailand has been upping their gold reserves, so this too is adding to the currency haven appeal as gold fever grips the Asian market yet again," he added. Currencies of major oil importers, the Indian rupee and Philippine peso edged higher, helped by a 4% dive in Brent crude overnight.
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