Most emerging Asian currencies eased on Wednesday as the dollar hit more than four-month highs with strong economic data, while a rebound in the Chinese yuan limited their losses. The yuan rose for a second straight session as China's central bank set its daily guidance rate surprisingly firmer, raising doubts over the country's commitment to make the currency more responsive to market forces. That came a day after major Chinese state banks were seen intervening to push the renminbi sharply up.
The Malaysian ringgit fell to a 1-1/2-week low as an overnight slide in crude prices underscored concerns over the country's oil and gas revenues. Adding to pressure, US federal prosecutors are set to file civil lawsuits seeking to seize assets linked to scandal-hit state fund 1Malaysia Development Berhad, the Wall Street Journal reported, citing unnamed sources.
South Korea's won and Thailand's baht slid as the dollar rose to its strongest since March 10 against a basket of six major currencies. US housing starts rose more than expected in June, indicating strength in the world's top economy and strengthening odds for a US interest rate hike this year. Still, few expected the US Federal Reserve to aggressively increase borrowing costs in the wake of Britain's looming exit from the European Union. The International Monetary Fund cut its global growth forecast for the next two years on Tuesday, citing uncertainty over Brexit.
Global central banks are expected to adopt further stimulus measures with the Bank of Japan likely to ease next week. Some governments have also started to ease their fiscal stance or hinted at plans to do so as central banks' loose policies run up against limits. Overall loose monetary and fiscal positions will help investors keep seeking higher yields in emerging Asia.
"EM Asian currencies are suffering a kind of correction. Given supportive US data, they are likely to weaken a bit more," said Qi Gao, an emerging Asian currency strategist for Scotiabank in Singapore. "But as the yuan is stabilising, their losses will be limited. In the coming weeks, we expect continued portfolio inflows to support EM Asian currencies."
Some Southeast Asian stocks such as Jakarta shares hit one-year highs on continuous foreign demand. The ringgit lost nearly 0.7 percent to 4.0260 per dollar, its weakest since July 8. Some of Malaysia's government bond prices slid. "With crude threatening to unhinge from the 45.00 handle and markets receiving downbeat global macro/central bank reminders, the MYR may continue to underperform," Emmanuel Ng, foreign exchange strategist at OCBC Bank, said in a note.
While Brent crude stood at $46.83 a barrel, US West Texas Intermediate crude traded at $44.78. The Malaysian currency also fell in the non-deliverable forwards market (NDFs) as offshore funds such as leveraged accounts and long-term investors sold them. The won slid as traders added dollar holdings due to the greenback's strength. The South Korean currency pared some of its earlier losses helped by strength in the yuan.
The won also found relief from continuous equity inflows and as local exporters bought it for settlements around 1,140. The baht eased as traders booked profits from the currency and local bonds after Bangkok's financial markets were closed for holidays on Monday and Tuesday, when some Southeast Asian currencies weakened. Thailand's government bond prices fell, but traders viewed the weakness as short-term profit-taking. The Thai currency recovered much of its earlier losses on expectations of continuous capital inflows due to further monetary policy easing by major central banks including the Bank of Japan.