Most emerging Asian currencies slid on Wednesday with South Korea's won at a 5-1/2-year low on some doubts over sustainability of an oil rebound, while a weaker Chinese yuan further hurt sentiment on regional units. The yuan slid on increasing dollar demand after the long Lunar New Year holiday in China and after the central bank set its daily guidance rate weaker again.
The Malaysian ringgit tracked the yuan's weakness, which contributed to traders dumping bullish bets on the second-best performing emerging Asian currency this year. Indonesia's rupiah fell as the central bank is expected to cut its policy interest rate on Thursday. The won slid as offshore funds kept dumping it after recent bond sales.
A top Federal Reserve official cemented expectations of slow US interest rate hikes, but that failed to support emerging Asian currencies. Boston Fed President Eric Rosengren said the US central bank should be "unhurried" as it considers when to again raise interest rates given problems overseas and financial market volatility that will likely dampen already low US inflation. Emerging Asian currencies have been pricing in views that the Fed may not rush to raise borrowing costs, analysts said.
"Almost all of what we heard from Fed policymakers in the past two weeks has been dovish," said Christopher Wong, senior FX analyst for Maybank in Singapore. "There are other factors to look out for including ongoing oil talks. I think the hurdle is very high for Iran to agree to freeze production at January level." Wong expected softer emerging Asian currencies, in particular the won and the Singapore dollar.
Crude oil futures rebounded on Wednesday in Asia on hopes that a deal between Saudi Arabia and Russia to freeze oil output at January levels would lead to a wider pact among producers that could eventually see production cuts to support prices. The won lost nearly 1 percent to 1,228.4 per dollar, its weakest since July 2010. The South Korean currency pared some of the losses as the foreign exchange authorities were suspected of intervening to stem a further slide for the worst-performing Asian currency this year, traders said.
Song In-chang, deputy finance minister in charge of international finance affairs, said the country will take firm action when needed to stabilise the foreign exchange market. Despite the warning and suspected intervention, foreign banks continued to sell the won, traders said. The currency is seen weakening to 1,233.2, the 38.2 percent Fibonacci retracement of its appreciation from 2009 to 2014, analysts said.
South Korea's foreign exchange bank deposits fell for a third consecutive month in January to a near two-year low, indicating support for the won could weaken. The rupiah slid as most Indonesian government bond prices fell. On Thursday, Bank Indonesia is predicted to make its second rate cut this year as it tries to boost sluggish growth in Southeast Asia's largest economy. Local importers bought dollars for payments, putting further pressure on the rupiah. The official Jakarta Interbank Spot Dollar Rate, which the central bank introduced in 2013 to manage exchange rate fluctuations, was fixed at 13,504, weaker than the previous 13,333.