Asian currencies were steady to firmer on Wednesday, days before the start of a Group of Seven meeting in Singapore, helped by buying in regional equities on the view that lower oil prices will improve corporate profits.
A narrowing of the yen's losses against the US dollar in late Asian trade improved sentiment for Asian currencies following yen-driven weakness in the past week. The yen was trading around 117.60 per dollar.
"The broader reason why dollar/Asia more generally was offered today outside of dollar/yen was that risk appetite was a bit better," said James Malcolm, currency strategist at Deutsche Bank in Singapore.
"Appetite for emerging markets was a little bit better. Equities were firmer and as a result no big surprise that Asian currencies were a bit better supported," he added.
The Indonesian rupiah was the biggest gainer, followed by the Thai baht and the Indian rupee. The rupiah traded two-fifths of a percent higher and was quoted at 9,110/9,115 to the US unit. A Jakarta-based trader said the currency was boosted by dollar selling by exporters and gains in the local stock market. The Indonesia central bank was also seen halting a decline in the rupiah around 9,150/9,160, he said.
The baht and the rupee were nearly a fifth of a percent higher, trading around 37.36/40 and 46.19/20 to the US dollar, respectively. Meanwhile, traders said rumours China might widening its yuan band supported the yen, which is seen as a proxy for the yuan. "I don't know whether that's credible or not but that's what weighed on dollar/yen in the last hour or so," Malcolm said, referring to the rumours.
Lee Ferridge, senior proprietary trader at Rabobank in London said the rumours should be taken "with a pinch of salt." Westpac Bank said in a note that it made sense for China to widen its narrow daily limit for the yuan's movement against the dollar, which is currently 0.3 percent either side of a daily mid point set by the central bank.
"Tactically, it could be wise for China to make the move this week before the G7 meeting in Singapore on Saturday, as a goodwill gesture that really doesn't cost China anything, given that the actual traded daily ranges are still firmly in PBOC's control," Westpac said.
Oil slipped below $64 on Wednesday, declining for the eighth straight session after Iran softened its stance over its nuclear programme and Opec agreed to keep its official output unchanged. Lower oil prices prompted buying of Asian stocks, pushing up the MSCI index of non-Japanese shares in the region by around 0.8 percent.
Markets will scrutinise the US Treasury Secretary Henry Paulson speech for comments about the need for a stronger and flexible Chinese yuan ahead of the G7 and IMF meetings in Singapore. Still, the yen and other Asian currencies could still be the focus at the G7 gathering and IMF and World Bank meetings later this week and next week after European policy makers called for greater exchange rate flexibility in Asia to address global economic imbalances.
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