Most emerging Asian currencies edged higher on Tuesday as a plunge in oil prices paused and the dollar broadly slid, although gains remain fragile ahead of a long-anticipated US interest rate hike this week. China's yuan hit a fresh 4-1/2-year low, limiting regional appreciation, after the central bank set its lowest daily guidance rate in more than four years for a second day in a row.
The South Korean won gained as the foreign exchange authorities were suspected on Monday of intervening to stem the currency's losses, traders said. The Thai baht rose as traders cut dollar holdings. The greenback eased against a basket of six major currencies ahead of the Federal Reserve's two-day policy meeting starting later in the day.
The US central bank is widely expected to raise interest rates at this meeting for the first time in nearly a decade. Investors are awaiting clues on how the Fed might set the pace for more monetary tightening next year. Emerging Asian currencies may rebound more in the short-term if the Fed suggests only a gradual tightening in 2016, analysts said. But such relief gains are unlikely to last long, given the yuan's weakness and sustained oil rout, they added.
"Asian currencies are not out of the woods yet, given oil prices, caution over the Fed and a weaker yuan," said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul. "We will see more weakness until the first quarter (of the next year)." The won gained as the suspected intervention on Monday boosted caution over further dollar selling by the authorities to support the local currency.
"Caution over the authorities stayed pretty solid. Their management to prevent a sharp loss seemed to become strong," said a South Korean bank trader in Seoul. The South Korean unit gave up some of earlier gains as foreign investors continued to sell local shares. Foreign investors were set to become net sellers in the equity markets for a 10th consecutive session, unloading a combined net 2.7 trillion won ($2.3 billion) in shares, the Korea Exchange data showed. Traders also hesitated to add holdings in the won ahead of the Fed's policy meeting. Indonesia's rupiah rose slightly as traders covered short positions in the currency on the dollar's broad weakness. The rupiah pared most of earlier rises as data showed Indonesia posting its first trade deficit in 12 months in November.