Most emerging Asian currencies rose on Wednesday as risk sentiment improved on views of more economic stimulus, especially from Japan, and prospects of strong US economic growth. Malaysia's ringgit, however, slid ahead of the central bank's interest rate policy announcement later in the day. Bank Negara Malaysia is widely expected to hold its benchmark rate unchanged at 3.25 percent.
The yuan rose as China's central bank was seen intervening in the offshore market to ease depreciation pressure on the currency. South Korea's won hit a 10-week high on sustained stock inflows, while Indonesia's rupiah edged up on higher bond prices. Asian equities rose to test their 2016 peak on growing expectations that Japanese Prime Minister Shinzo Abe would launch a new campaign to save the economy which is threatening to slip back into deflation.
Still, most emerging Asian currencies pared some of their earlier gains as some analysts saw their recent appreciation as excessive. Increasing prospects of monetary stimulus by major central banks, especially since Brexit, have been lifting regional units. "It does look like risk proxies such as some AXJs could stay firmed as sentiment remains supported on hopes of easy monetary policies amid subdued growth environment," said Christopher Wong, a senior FX strategist for Maybank in Singapore, referring to Asia ex-Japan currencies.
"But I am worried of the market getting ahead of itself and I am cautious of European banking sector risks putting stresses on funding and liquidity. I am biased to buy USD on dips against Asia," said Wong. Italy's banks are in trouble with some 360 billion euros ($398 billion) of bad loans. Their shares have been hit by selling this year and that has intensified after Britain's vote to leave the European Union last month. The won earlier gained as much as 0.5 percent to 1,142.5 per dollar, its strongest since May 3.
Foreign investors were on course to extend their buying spree in Seoul shares to a fifth consecutive session. The South Korean currency pared much of its earlier gains as caution grew over possible intervention by the foreign exchange authorities to stem the won's strength. It also has chart resistance at 1,144.2, the 76.4 percent Fibonacci retracement of its depreciation from April to June, analysts said. The won may head to 1,128.3, this year's high hit on April 20, if the resistance level is clearly breached, they added. Investors were awaiting the central bank's monetary policy meeting on Thursday. The ringgit eased as Malaysian government bond prices slid.