Most emerging Asian currencies gained on Tuesday as risk sentiment improved after the euro rebounded when market participants took a view that the selloff after Italy's reform referendum was excessive. Regional currencies found further short-term support from the dollar's broad weakness although robust US economic data cemented expectations that the Federal Reserve would raise interest rates next week.
China's yuan hit a near three-week high as the central bank set its daily guidance rate firmer than some investors had expected, taking a weak dollar as a chance to support the battered renminbi. South Korea's won rose as foreign investors recently bought bonds and Seoul shares advanced more than 1 percent. Indonesia's rupiah touched a 2-1/2-week high, tracking higher government bond prices.
The euro bounced from a 21-month low hit on Monday after Italian Prime Minister Matteo Renzi lost a referendum to reform the constitution. The common currency's rebound partially pushed the dollar's value against a six major currency index to three-week lows.
Investors and analysts have seen the dollar's recent rally spurred by Donald Trump's surprise victory as overdone. The prospect of a rate hike at the Fed's December 13-14 meeting is also mostly priced in, they added. "The USD may see further pullback on position adjustment ahead of the Fed meeting next week. That will allow a breather for Asia ex-Japan currencies," said Christopher Wong, a senior FX strategist for Maybank in Singapore.
"But I expect some weakness in Asian currencies, given fears of Trump's trade protectionist policies." Wong prefers to sell Asian currencies such as the won and the Singapore dollar against the euro and the British pound, seeing "tactical" upside risks in those currencies.
The won gained as foreign investors bought a combined net 524.6 billion won ($448.1 million) worth of South Korean bonds in the first five days of this month, according to preliminary data from a financial regulator. The inflows came despite South Korea's political scandal that appears set to bring down President Park Geun-hye. "Some foreigners seem to keep seeing won-dominated bonds as a safe haven," said a bond trader for a South Korean brokerage in Seoul. The rupiah advanced 0.5 percent to 13,365 per dollar, its strongest since November 17. Most Indonesian government bond prices rose with the 10-year yield at a two-week low of 8.036 percent.
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