Most emerging Asian currencies extended losses on Monday despite China's stronger guidance on the yuan as the outlook for the renminbi remained weak amid uncertainties over Beijing's exchange rate policy on a slowing economy. The yuan rose after the People's Bank of China set its daily midpoint rate higher for a second session. That helped the Singapore dollar turn firmer and other emerging Asian currencies recover earlier losses.
Still, regional units failed to fully benefit from the renminbi's rebound as doubts lingered over whether and how long China will continue efforts to support the currency. China's consumer inflation barely edged up in December, while companies' factory-gate prices kept falling, adding to concerns over growing deflation risks in the world's second-largest economy.
"Chinese authorities showed stabilisation efforts for a few days. But that won't last long and the yuan may fall sharply again," said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul. "Emerging market currencies will stay weaker in the first quarter at least on more volatility in Chinese markets. In addition, talks over timing on more US interest rate hikes will emerge," Park added.
US payrolls surged in December and the jobs count for the prior two months was revised sharply higher, showing the world's top economy on solid ground despite recent global financial market turbulence, led by Chinese markets. South Korea's won hit a 5-1/2-year low as the country was seen more sensitive to a slowing Chinese economy. The Malaysian ringgit hovered near a three-month low as slumping crude prices added to concerns over the country's falling oil and gas revenues. November industrial production slowed to its weakest pace in 16 months.
South Africa's rand hit a record low as traders said Japanese investors seemed to be bailing out of long positions in the currency. The won lost as much as 1.1 percent to 1,211.5 per dollar, its weakest since July 2010, as offshore funds continued to sell the South Korean currency. Goldman Sachs revised its three- and six-month forecasts for the won to 1,250 and 1,280, respectively, from the previous 1,200 and 1,230, on the yuan's weakness and a slowdown in Asia's fourth-largest economy.
"We believe that the recent depreciation is not just a bout of volatility but a reflection of a trend towards 1,300," Goldman Sachs said in a research note. "We continue to expect sustained trade stagnation in Korea as the stagnation in our view largely reflects global structural factors, including China rebalancing and global technological progress." Still, the won pared some of earlier losses as South Korea's foreign exchange authorities were spotted intervening to stem the won's weakness, traders said. The renminbi's rebound also helped the won recover some of slides. The ringgit fell as much as 0.7 percent to 4.4160 per dollar from Friday's close. That compares with Thursday's low of 4.4250, its weakest since October 2.
The Malaysian currency pared some of the losses on the yuan's rebound, but stayed under pressure on weaker industrial production data. Factory output in November grew 1.8 percent from a year earlier, its slowest since July 2014 and well below the median forecast of 4.0 percent from a Reuters poll of economists.