Most Asian currencies eked out gains on Wednesday thanks to a relatively soft US dollar, but the Chinese yuan extended losses despite support from state banks.
Most Asian stock markets also firmed, with risk appetite spurred by hopes that the pace of US and global rate hikes will soon start to slow.
The yuan extended its downward spiral against the greenback for the fifth straight day after broad sell-offs in the previous sessions. The currency was trading at 7.289 against the dollar at midday, down about 0.3%.
Sources told Reuters that big state banks had sold dollars in both onshore and offshore markets in late trade on Tuesday to prop up the yuan, making sellers more cautious on Wednesday.
The mood in Asia’s largest economy still remained sour, days after President Xi Jinping’s new leadership team was revealed.
Some investors fear coming years could see a greater focus on ideology-driven policy rather than economic growth, and there are no signs the government will soon ease its tough zero-COVID stance. Still, China shares rose more than 1%.
“The overall environment around Chinese equities could still remain cautious until we are able to see further follow-up in supportive measures, but it could still take a significant deviation from current policies to reassure markets of a more sustained growth ahead,” Yeap Jun Rong, a market strategist from IG Markets said.
The yuan has fallen 0.8% in the week and has recorded nearly a 13% decline against the greenback on a year-to-date basis.
Asian currencies mixed in thin trading, Chinese yuan falls most
Globally, markets have priced in another 75 basis point hike at the US Federal Reserve’s Nov. 1-2 meeting, although there is a possibility that it could opt for a less aggressive rate increase in December given recent signs the world’s largest economy is starting to slow.
“Further weakness in economic indicators could continue to fuel speculation of a calibration in Dec even as Fed Fund futures still lean towards the 75bps hike rather than a 50bps hike given the sticky US core CPI,” analysts from Maybank said in a research note.
At 0452 GMT, the dollar index, which measures the strength of the greenback against major currencies was at 110.9.
The South Korean won led FX gains across the Asia Pacific, rising about 0.5%, while other currencies such as the Indonesian rupiah, Malaysian ringgit and the Taiwan dollar climbed by up to 0.2%.
Among Asian equities, shares across Manila, Kuala Lumpur, Seoul and Jakarta advanced between 0.1% and 0.8% Markets in India were closed due to a public holiday.
Highlights:
** Indonesia’s benchmark 10-year falls to 7.629%
** BOJ ramps up bond buying ahead of policy meet, yields fall sharply
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