Most emerging Asian currencies slid on Thursday as mounting fears of a global economic slump dampened risk appetite, while expectations of an imminent US interest rate hike dim the appeal of the region's higher yields. China's manufacturers reduced prices at the fastest rate in six years in August, deepening deflation risks. Japan's key gauge of capital spending unexpectedly fell for a second straight month in July, adding to pressure on the Bank of Japan to provide fresh stimulus.
New Zealand's central bank lowered its benchmark interest rate and said a further economic slowdown in China could lead to more rate cuts if it undermined New Zealand's growth. By contrast, US job openings hit a record high in July, which could allow the Federal Reserve to raise interest rates this year. "Market sentiment is still fragile in the region. The underlying trend for the USD is still underpinned by monetary policy divergences," said Philip Wee, senior currency economist at DBS in Singapore.
Asian countries are taking various economic steps to help stabilise sentiment, but they are unlikely to support regional currencies for a long term, Wee said. "It is still too early to talk about major trend changes. The CNY (yuan) has just depreciated, and the Fed has yet to start lifting rates." China's yuan slid as the central bank set its guidance rate weaker and currency authorities appeared to be intervening less heavily.
The Malaysian ringgit and the Indonesian rupiah fell to their lowest levels since the Asian financial crisis 17 years ago on concerns over the effect of weak commodity prices on their economies. Standard & Poor's downgraded Brazil to a "junk" credit rating, with the economy and public finances deteriorating amid falling commodity prices and China's slowdown.
The Indian rupee slid as the government dropped a plan to reconvene parliament to secure approval for a goods and services tax, in another setback to Prime Minister Narendra Modi's faltering plans to revamp the economy. The ringgit lost as much as 1.1 percent to 4.3750 per dollar in thin trading, its weakest since January 1998. Oil prices extended their falls, adding to worries about Malaysia's exports. The country is a major supplier of natural liquefied gas and palm oil. "Familiar drivers are leading the charge as oil trades lower and increasing negativity towards emerging markets permeates trader sentiment," said Stephen Innes, senior currency trader at Oanda in Singapore, of the sliding ringgit.
The Malaysian currency is expected to weaken to 4.4203, the 76.4 percent Fibonacci retracement of its appreciation from 1998 to 2011, analysts said. Currency traders ignored data showing Malaysia's industrial output grew 6.1 percent from a year earlier, well above expectations. The rupiah dropped 0.5 percent to 14,335 per dollar, its weakest since July 1998, tracking its losses in non-deliverable forwards markets. Most Indonesian government bond prices fell, while Jakarta shares eased.
The official Jakarta Interbank Spot Dollar Rate, which the central bank introduced in 2013 to manage exchange rate fluctuations, was fixed at 14,322 rupiah per dollar, its weakest since the launch. South Korea's won fell as foreign investors extended their selling spree in the main stock exchange to a 26th session. Foreigners dumped a combined net 5.2 trillion won ($4.4 billion) during the session, Korea Exchange data showed. The won pared some of earlier losses as exporters bought it for settlements, prompting some offshore funds to cover short positions. The Singapore dollar slumped on the yuan's weakness. The city-state's currency closely tracks the renminbi as traders and analysts believe it is included in the undisclosed currency basket used by the Monetary Authority of Singapore to manage monetary policy.