Most emerging Asian currencies pulled back on Monday as Italian Prime Minister Matteo Renzi said he would resign after suffering a crushing defeat on constitutional reform, tipping the country into political turmoil and threatening to destabilise its shaky banking system. Malaysia's ringgit edged up after the central bank on Friday announced fresh measures to stabilise the currency by boosting liquidity and encouraging more domestic trade of the unit.
The Singapore dollar fell 0.4 percent, leading losses among regional currencies on the euro's tumble to a near two-year low. Renzi's defeat deals a blow to the European Union already reeling under anti-establishment anger that caused the shock exit of the United Kingdom from the club in June this year. Taiwan's dollar touched a 1-1/2-week trough on capital outflows.
"The Italian referendum dampened market sentiment as it raised political uncertainties and worries about Italian bank problems," said Qi Gao, a FX strategist with Scotiabank in Singapore. The Singapore dollar is seen more vulnerable to the euro's weakness as the single currency is believed to be a part - around 12 percent - of the undisclosed currency basket used by the Monetary Authority of Singapore to manage monetary policy, Gao said.
The Taiwan dollar fell 0.2 percent to 32.000 per the US dollar, its weakest since November 24. Foreign investors dumped nearly a net T$10 billion ($312.7 million) worth of local stocks on Friday, the largest daily selling since November 15, the Taiwan Stock Exchange data showed.
The island's exporters bought the Taiwan dollar for settlements around the session low, limiting the currency's loss, traders said. The ringgit found support after Malaysia's central bank said exporters could only retain up to 25 percent of export proceeds in a foreign currency, while the reminder must be converted into local currency. Higher balances would need central bank approval, Bank Negara Malaysia said.
"We view these measures as positive for the ringgit in the short term and should help ease the current USD shortage," said analysts for Credit Suisse said in a note. Still, the ringgit's long-term outlook remains uncertain, they added. "The extent of ringgit recovery will likely be capped by the broader USD uptrend, restriction in NDF (non-deliverable forward) trading, and ultimately the need for BNM to rebuild reserves."
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