Asian currencies remained on the back foot on Wednesday as the yuan continued to weaken despite signs Chinese authorities were stepping in to limit the losses.
Global investors are on edge over whether a sudden slide in the yuan to 11-year lows will turn into the next front in the deepening U.S.-China trade war, engulfing other currencies.
China let the yuan break through the key 7 per dollar level on Monday amid growing U.S. tariff pressure, jolting international markets. But there were some signs on Tuesday that Chinese authorities were trying to stabilise the currency before depreciation expectations grow too strong.
China's state banks have been active in the onshore yuan forwards market this week, using swaps to tighten dollar supply and support the Chinese currency, four sources with knowledge of the matter told Reuters.
While the moves helped soothe nerves across markets, investors remain wary of how much more Beijing will allow the currency to soften. The yuan slipped a further 0.3% to 7.047 per dollar on Wednesday.
"The USDCNY fix was curiously just below the 7-handle, suggesting that the bait is still there for US Treasury to take (to intervene or jawbone the USD lower)," Maybank said in a note.
After labelling China a currency manipulator earlier this week following the yuan's sudden slide, U.S. President Donald Trump on Tuesday dismissed fears of a protracted trade war. But any remaining market hopes of a near-term resolution to the dispute are dimming rapidly after events of the past week.
South Korea's won and Taiwan's dollar wavered for much of the day, while the Philippine peso weakened 0.4%. The Philippine central bank will decide rates on Thursday, with DBS predicting a 25 basis point cut and another 25 bps cut later this year.
Elsewhere, ahead of the Indian central bank meeting later in the day, the rupee dropped 0.2% against the dollar to 70.94.
The Reserve Bank of India is widely expected to cut rates for the fourth meeting in a row as it seeks to battle sluggish growth, though some analysts do not see a pressing need for more easing right now.
"We do not see a compelling case for the RBI to engage in a fourth rate cut to lower the repo rate," Vishnu Varathan, a senior economist with Mizuho, wrote in a note.
A Reuters poll showed that analysts expect the rupee to recoup this year's losses over the coming 12 months.
The Thai central bank was also set to meet later in the day to decide rates. It is expected to stand pat, and the baht, Asia's best performer this year, was largely unchanged in morning trade.
At times of heightened uncertainty, money tends to flow to assets with safe-haven appeal, like gold or bonds. Gold prices jumped 1% earlier in Asian-trade while the Japanese yen, also considered a safe play, strengthened 0.4%.
Risk sentiment took a further hit after the Reserve Bank of New Zealand stunned traders by cutting its interest rates more than expected, highlighting the growing concern policymakers have about the global economy.
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