Emerging Asian currencies fell on Friday and are set for weekly losses, defying China's efforts to soothe jittery global markets after yuan devaluation, due to a bearish outlook for the world's second-largest economy and its currency. The Malaysian ringgit hit a fresh pre-peg 17-year low in thin liquidity as falling oil prices raised concerns over the country's exports. Offshore funds, including real money accounts, dumped the currency with falling local shares and government bond prices.
The People's Bank of China (PBOC) set its daily yuan midpoint rate firmer than the previous session for the first time after this week's devaluation. That helped the renminbi stabilise. The PBOC had stated on Thursday that there was no basis for further depreciation in the yuan, given strong economic fundamentals. Despite such efforts, the outlook for the yuan and China's economy remains pessimistic, which will hurt other emerging Asian currencies further, traders and analysts said.
"China is doing the right thing for themselves. They will weaken further down the line," said Kay Van-Petersen, Asia Macro Strategist for Saxo Capital Markets. "China became the biggest trading partners to a lot of Asian countries. With a weaker yuan, their exports are going to go lower. This is a kind of double whammy," he said. Emerging Asian currencies dropped to multi-year lows as China devalued the yuan on Tuesday after a series of disappointing economic data suggested the economy needs further stimulus. That prompted fears of a "currency war."
"The most pessimistic targets have been met and now we are seeing traders price in a move to reach 4.25," said Stephen Innes, senior trader for FX broker Oanda in Singapore. "The central bank is signalling very little fight in defense of the move." Malaysia's international reserves fell to $96.7 billion, central bank data showed last week, fuelling doubts over the government's ability to bolster the ringgit amid capital outflows. Some analysts see the possibility of capital controls, but Bank Negara Malaysia Governor Zeti Akhtar Aziz on Thursday said Malaysia did not want to peg the currency. Investors have lost confidence on sliding commodity prices and a corruption scandal linked to Prime Minister Najib Razak and 1Malaysia Development Berhad.
The Indonesian rupiah has lost 1.7 percent so far this week, hitting a fresh 17-year low on Wednesday. The currency fell on bond outflows amid worries about the effect of falling commodities prices on exports. India's rupee has declined 2.1 percent for the week as China's devaluation hurt sentiment. If the currency maintains the loss, it would be the largest weekly slide since August 2013. The Singapore dollar has declined 1.3 percent throughout this week as the city-state's economy contracted in the second quarter, raising some speculation about further easing.
With Asian currencies weakening sharply, central banks of Asian countries such as China, Malaysia, Indonesia and South Korea have intervened to slow the declines, traders said. South Korea's won ended the week down 0.6 percent as several traders said the foreign exchange authorities were estimated to have sold about $4 billion in total on Tuesday and Wednesday. Local markets were closed on Friday for a holiday.