Asian currencies fall on yuan weakness, lingering trade concerns

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(July 20): China's yuan tumbled to its lowest in more than a year against the dollar after China's central bank lowered its midpoint fix for a seventh straight session, although it reversed most of its losses later in the day.

The People's Bank of China set the daily midpoint for onshore trading at 6.7671 per dollar on Friday, the lowest since July 14, 2017. The move was also the biggest one-day weakening in percentage terms since June 27, 2016.

The yuan's decline comes as China grapples with a slowdown in its economic growth and faces high tariffs on some goods it exports to the United States.  

Wei Liang Chang, an FX strategist at Mizuho Bank, said the yuan's weakness could cushion the economy from downside risks which was the reason the PBOC was comfortable with it.

"At the same time, they (PBOC) will be keen to pre-empt excessive speculation. In 2015, speculation caused very heavy capital outflows, and they don't want to see a repeat of that," Chang said.

Some traders said major state-owned Chinese banks were seen selling dollars in both onshore and offshore foreign exchange markets on Friday, in an attempt to prevent the yuan from sinking too rapidly.

Other Asian currencies also fell sharply on Friday.

The Indian rupee  hit a record low of 69.13 per dollar earlier on the day, while Indonesia's rupiah fell to its lowest since October 2015.

Indonesia's central bank kept its benchmark interest rate unchanged on Thursday, as expected, pausing a monetary tightening cycle aimed at bolstering the rupiah, while affirming it was still ready to support the currency.

"Most Asian countries have very high export similarity with China. To maintain competition, there is going to be some degree of adjustment in line with RMB (yuan) weakness," said Mizuho's Wei Liang.

The dollar index versus a basket of six major currencies fell 0.16% to 95.004 on Friday, holding just above the psychologically-significant threshold of 95.

The dollar dropped after US President Donald Trump criticised the US Fed's monetary tightening and what he said was the potential impact on the US economy and competitiveness.

While the greenback has fallen against the major currencies over the past two days, it has strengthened against the regional currencies.

Saktiandi Supaat, head of FX research at Maybank, said the Fed's hawkish rhetoric and lingering concerns over a trade war would support the US dollar.

He said "USD strength is expected to be uneven", with Asian currencies feeling more pressure than G3 currencies in coming days.

The following table shows rates for Asian currencies against the dollar at 0544 GMT.

CURRENCIES VS US DOLLAR
Change as of 0544 GMT

Currency               Latest bid  Previous day   % move
Japan yen             112.320    112.45  +0.12
Sing dlr              1.367      1.3705  +0.26
Taiwan dlr            30.737     30.632  -0.34
Korean won            1134.200    1133.2  -0.09
Baht                  33.420      33.45  +0.09
Peso                  53.530      53.53  +0.00
Rupiah                14530.000     14470  -0.41
Rupee                 69.123      69.05  -0.11
Ringgit               4.058       4.062  +0.10
Yuan                  6.777      6.7796  +0.03

Change so far in 2018

Currency              Latest bid   End 2017    % move
Japan yen             112.320    112.67  +0.31
Sing dlr              1.367      1.3373  -2.17
Taiwan dlr            30.737     29.848  -2.89
Korean won            1134.200   1070.50  -5.62
Baht                  33.420      32.58  -2.51
Peso                  53.530      49.93  -6.73
Rupiah                14530.000     13565  -6.64
Rupee                 68.870      63.87  -7.26
Ringgit               4.058      4.0440  -0.34
Yuan                  6.777      6.5069  -3.99