Asian currencies weakened on Monday as investors sold off risky assets after a plunge in oil prices exacerbated concerns over economic fallout stemming from the coronavirus epidemic.
Saudi Arabia's decision to slash average selling prices and ramp up crude production after Russia backed away from making output cuts sent shockwaves through the markets and is likely to weigh on regional currencies, since the majority of them are net oil importers.
Meanwhile, the number of coronavirus cases globally surged past 107,000 as the outbreak spread to more countries. Italy took drastic measures and sealed off large parts of the prosperous north of the country, including financial capital Milan. Panicked investors sought safer bets and pushed the Japanese yen up 3% against the dollar to a three-year high and the euro to a two-year peak.
US 30-year treasury yields sank below 1% and 10-year yields under 0.5%, eroding the dollar's chief attraction as the markets upped their bets for further rate cuts by the Federal Reserve to mitigate the economic damage.
The Fed's move is expected to spill over to Asia, with Morgan Stanley analysts expecting that "the majority of emerging market central banks will also cut rates further, taking global monetary policy rates to a new all-time low."
Malaysia, and oil importing nation Indonesia, saw their currencies lose nearly 1% against the dollar, while their respective stock markets also hit multi-year lows.
The rupiah was on track to slide for a third straight session and Indonesia's 10-year government bond yield rose slightly.
The Malaysian ringgit dropped 0.9% and was on its way to mark a worst session in two-weeks. The country's new prime minister is due to announce his new cabinet later on Monday, a week after he was appointed amid a political tussle. The South Korean won weakened as much as 1.3% to 1,207.20 against the dollar, prompting its finance ministry to issue a verbal warning against disorderly currency market movement.
India, the world's third-biggest oil importer, saw its currency decline 0.3%, while the Singapore dollar gave up about 0.5%.
The Chinese yuan pared early gains to trade 0.1% lower after reporting a larger than expected plunge in exports over the weekend. However, analysts at HSBC see the yuan benefiting from a dip in oil prices as nearly a quarter of its imports are commodity-related.
China's monetary policy will be closely watched, which has so far lagged the Fed's, and resulted in a record yield differential that is likely to support foreign inflows to its bond market, HSBC added. "We believe the yuan will outperform the basket this year."
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