Asia FX gains

Most emerging Asian currencies rose on Tuesday, helped by a Reuters report that China was planning fresh moves to stabilise the yuan, though sentiment toward the region stayed bearish after a survey showed Chinese factory activity had slumped. China's central bank will tighten rules on trading of currency forwards from October, sources with direct knowledge of the matter told Reuters, in a move to stem speculation and volatility after a shock devaluation of the yuan last month.
The yuan strengthened in both onshore and offshore markets. "The measure indicates China's intention to ease the yuan's slide. So, the market is partially reducing bearish bets on Asian currencies made after the devaluation," said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul. Emerging Asian currencies fell to multi-year lows after China's devaluation on August 11 sparked fears of a global currency war and a rout in the world financial markets.
The Malaysian ringgit hit its strongest levels in more than a week on Tuesday, helped by a thin market and an overnight rise in oil prices. There was also relief that anti-government protests during a long weekend passed peacefully. South Korea's won touched a near three-week peak on stop-loss dollar selling. The US dollar slid against a basket of six major currencies as the yen and the euro rose with unwinding carry trades.
Still, emerging Asian currencies are unlikely to extend gains as deepening concerns over a sluggish China's economy continued to dent risk sentiment, analysts and traders said. Activity in China's manufacturing sector contracted at its fastest pace in three years in August, an official survey showed earlier, boosting fears of a potential hard landing in the world's second-largest economy.
Asian equity markets fell. The slide in stocks could prompt investors to unwind bets in risky assets funded by low-yielding currencies such as the euro, analysts said. "EUR/Asia FX are back to levels seen at the beginning of the year when the carry trades started to accumulate. There is still further room (for unwinding)," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.
"We have just gotten a glimpse of the currency weakness in the region which could get a lot more pronounced by the year-end." Earlier this year, most emerging Asian currencies had risen against the euro as the European Central Bank launched a government bond-buying programme. The ringgit rose as much as 1.5 percent to 4.1380 per dollar, its strongest since August 21.
Malaysian stocks gained 0.6 percent, outpacing other Southeast Asian equity markets. The government bond prices also gained. Crude futures soared more than 8 percent on Monday in New York, easing concerns over Malaysia's exports. The country is a major supplier of natural liquefied gas, whose price is linked to crude oil's. Still, traders downplayed the ringgit's rebounds due to thin liquidity. Oil prices also fell on Tuesday in Asia.
"Short-term speculators are not trading much because liquidity is bad," said a senior Malaysia bank trader, adding he would not add positions on the ringgit either way. The won gained 1.1 percent to 1,170.0 per dollar, its strongest since August 13. Foreign and local investors rushed to cover short positions in the South Korean currency, while exporters joined the bids for settlements.
Still, the won has a chart resistance at 1,166.2, the 76.4 percent Fibonacci retracement of its depreciation since August 11, analysts said. South Korean exports also posted their worst fall in six years in August. The Taiwan dollar advanced 1.4 percent from Monday's close, which traders said the central bank had weakened through last-minute intervention. The island's currency found support from gains in the yuan and the won. Still, upside in the unit was limited as local stocks lost 1.9 percent. Activity in Taiwan's manufacturing sector contracted at the steepest pace in nearly three years, a private survey showed. Importers were lined up to buy the US dollar for payments on dips, traders said.