Asian currencies fell on Tuesday as investors fled risky trades on fresh financial concerns following soft corporate earnings reports released the previous day, but the yuan and South Korean won bucked the trend.
Several major US companies, including American Express Co, iPod maker Apple Inc and cruise ship operator Royal Caribbean Cruises Ltd, disappointed investors with lower-than-expected quarterly results on Monday that weighed on Asian markets on Tuesday.
The Indonesian rupiah fell 0.3 percent to 9,171 per dollar, its weakest in close to two weeks, and traders said foreign investors were pulling out of the local stock market and selling the rupiah. "Part of the rupiah weakness is due to the bad results coming out of the US companies, which drag on the onshore currency market," a trader in Jakarta said.
However, the yuan defied the trend and rose to its strongest since the currency was revalued in July 2005. It jumped 0.4 percent to 6.8016, extending early gains. "The market consensus is that yuan appreciation will slow to 3 percent in the second half of this year, less than half of the rise in the first six months," a trader in Shanghai said.
Yet not all analysts shared the view that the yuan's appreciation is easing. David Mann, a senior strategist at Standard Chartered Bank in Hong Kong, said he was not convinced that a slowdown in appreciation was occurring at the moment. "It may happen over the next year, only after policymakers are more sure that they have won the battle against inflation," he said.
"Also, we believe there is more focus on the trade weighted exchange rate. Therefore the outlook for the dollar/yuan will be even more affected by expectations for the broad US dollar trend." The US dollar was steady against other major currencies on Tuesday as worries over the state of the US financial sector limited its movement.
The Korean won inched up by 0.2 percent against the US currency to 1,015.75, rebounding from an intraday low that was the weakest level in almost two weeks, as traders suspected authorities had sold dollars to prop up the local unit. A mild recovery in oil prices on Monday also weighed on currencies in a region dogged by fears of rising inflationary pressures. Crude oil rose more than $2 a barrel to $131.04 the previous day.
In the Philippines, which covers almost all of its crude oil needs with imports, the peso retreated from a one-month high and led losses in the region as it fell 0.5 percent to 44.75 per dollar. "If oil continues to recover, we might see a stronger US dollar against the peso or even against other regional currencies," a Manila-based trader said.
On Monday, the peso hit its strongest level since June 19, boosted by a 50-basis-point interest rates hike last week. "I think the market sees the rate hike as a start in solving the problem, but not the solution to the problem," the trader said, indicating the increase in interest rates may not sufficiently quell inflation or nor aid the peso.
Analysts in the region said they were watching out for further earnings reports this week, including results from Wachovia Corp and Washington Mutual in the United States due later in the day.