Most emerging Asian currencies rebounded on Tuesday as China took steps to restore calm, including through suspected currency market intervention, after a plunge in China's share markets the previous day forced emerging market investors into retreat. Strong doubts remained over how long the uneasy calm would last, as there are mounting concerns over the economic slowdown.
"I still see downside risks from China where growth is slowing with no prospect of stabilisation in the manufacturing sector. More importantly, the CNY and CNH have weakened to levels, not anticipated by many - too much, too fast," said Nordea Markets' senior analyst Amy Yuan Zhuang in Singapore, referring to onshore and offshore yuan. "The key question, which is hard to predict at the moment with vague political signal, is whether Beijing will continue weaken the currency. If so, then Asian FX could feel the pressure."
The onshore Chinese yuan rose on Tuesday as the central bank set its daily guidance rate slightly firmer than many had expected. The foreign exchange authority was also suspected of intervening through state-run banks to support the renminbi, traders said. To further aid sentiment, the People's Bank of China injected 130 billion yuan ($19.9 billion) into money markets - the largest daily liquidity injection since September 8. Those measures helped both mainland China stocks and other riskier assets in Asia, bolstering some currencies in the region.
Indonesia's rupiah led gains, with inflows seen ahead of a government bond sale later in the day. Malaysia's ringgit rose on higher local stocks. The South Korean won turned higher on growing caution over possible intervention by the foreign exchange authorities. The rupiah started the day weaker but turned firmer as Jakarta stocks jumped more than 1 percent, outperforming regional peers. The Indonesian currency extended gains on capital inflows ahead of the government's bond auction with an indicative target of 12 trillion rupiah ($868.6 million) later in the day.
A currency trader in Jakarta said the government could sell as much as 18 trillion rupiah. Easing inflation and a shrinking current account deficit have recently drawn foreign investors to seek higher yields from Indonesia's bonds. In December, the annual inflation rate cooled to the lowest in six years. The ringgit rose as Malaysian equities also advanced over 1 percent. Leveraged funds bought the Malaysian currency in non-deliverable forwards markets.
The ringgit also found support from demand against the neighbouring Singapore dollar. The won earlier skidded to 1,192.1 per dollar, its weakest since September 30, tracking weakness in the offshore yuan. The South Korean currency reversed initial losses as the onshore renminbi rose on suspected intervention. Caution also grew over possible intervention by South Korea as the authorities were on Monday spotted in the currency market to stem the won's weakness. "A turnaround in Chinese markets and suspected dollar supplies from the authorities caused stop-loss dollar selling," said a South Korean bank trader in Seoul. A senor South Korean finance ministry official said on Tuesday the government will take action to stabilise markets if needed.
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