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EM ASIA FX-Asia FX haunted as China devaluation sparks currency war fears
August 12, 2015 / 7:08 AM / 2 years ago

EM ASIA FX-Asia FX haunted as China devaluation sparks currency war fears

* Yuan hits 4-year low after PBOC sets weaker midpoint
    * Ringgit below 4/dollar, rupiah at fresh 17-year trough
    * Singapore dlr, Taiwan dlr, Philippine peso at 5-year lows
    * Vietnam doubles FX trading band to 2 pct

 (Adds more details. Updates prices)
    By Jongwoo Cheon
    SINGAPORE, Aug 12 (Reuters) - Emerging Asian currencies fell
to multi-year lows on Wednesday after China's central bank
allowed the yuan to drop for the second straight day to a
four-year trough, a move sparking fears of a global currency
war.
    The yuan fell to as low as 6.4508 per dollar, its
lowest since July 2011, after the People's Bank of China
weakened its daily yuan midpoint by 1.6 percent. 
    The People's Bank of China, which described the devaluation
as a one-off step to make the yuan more responsive to market
forces, sought to reassure financial markets it was not
embarking on a steady depreciation. 
    But markets stayed jittery, expecting the move could be the
start of a further slide and driving the yuan's peers weaker,
analysts said.
    China took steps to weaken the yuan after disappointing
economic data indicated that further stimulus may be needed to
revive growth in the world's second-largest economy. China's
July factory output rose 6.0 percent from a year earlier, well
below market expectations. 
    "It wasn't meant to be one-off for sure and there will be
further depreciation until the PBOC stabilises the spot to
re-align with the fixing, which requires more significant
intervention effort," said Andy Ji, Asian currency strategist
for Commonwealth Bank of Australia in Singapore.
    In the meantime, Ji added, the U.S. dollar "will march on",
strengthening further against Asian currencies.
    Malaysia's ringgit weakened past a psychologically
important 4.0000 per dollar level to hit a fresh 17-year pre-peg
low. Indonesia's rupiah also fell to a level not seen
since July 1998.
    The Singapore dollar, the Taiwan dollar 
and the Philippine peso all touched five-year
troughs.
    The South Korea won slid to nearly a four-year
low.
    China's devaluation bolstered expectations that other Asian
countries may let their currencies weaken to support their
economies, as long as the pace of depreciation is not too fast.
    South Korea's finance minister said China's step to weaken
the yuan will help South Korean exports eventually.
 
    Vietnam doubled its trading band for interbank dollar/dong
transactions on Wednesday, aiming to protect its exports by
countering the adverse affects of a strengthening dollar and
yuan devaluation. 
    Some foreign exchange authorities in Asia, including South
Korea and Indonesia, were spotted intervening to defend their
currencies, but it does not indicate they favour stronger
currencies, analysts said.
    "They need to slow down speed as excessive volatilities
could spur massive capital outflows," said Yuna Park, a currency
and bond analyst at Dongbu Securities in Seoul.
    "No one wants appreciation in this currency war. A slow
depreciation is the best."
        
    RUPIAH
    The rupiah lost as much as 1.7 percent to 13,825 per dollar,
its weakest since July 1998, as Jakarta shares dropped
3.2 percent earlier.
    Foreigners' hedging-related dollar demand hurt the rupiah
further, traders said.
    The Indonesian currency pared some losses as the central
bank was spotted "heavily" intervening, traders said.
    Bank Indonesia chief said the rupiah's decline has overshot
and it is undervalued, after a senior deputy governor warned of
intervention.  
    
    RINGGIT
    The ringgit dropped 1.8 percent to 4.0320 per dollar, its
weakest since Sept. 1, 1998.
    Malaysia pegged the ringgit at 3.8000 from early September
1998 to support the currency during the Asian financial crisis.
The country took the ringgit off the peg in 2005.
    Kuala Lumpur stocks lost 1.9 percent amid sliding
investor confidence due to falling commodity prices and growing
pressure on Prime Minister Najib Razak amid corruption
allegations involving indebted state fund 1Malaysia Development
Berhad.
    Most government bond prices fell. The five-year government
bond yield jumped to 3.969 percent, its highest since
November 2008.
    
    WON
    The won lost as much as 1.4 percent to 1,195.5 per dollar,
its weakest since October 2011, on dollar demand from foreign
banks.
    The South Korean currency pared some losses as traders in
Seoul suspected the local authorities of selling dollars to tame
the won's volatility.
    
    SINGAPORE DOLLAR
    The Singapore dollar fell 1.1 percent to 1.4165 to the U.S.
dollar, its weakest since June 2010.
    The city-state's currency closely tracks the yuan as traders
and analysts believe it is included in the undisclosed currency
basket used by the Monetary Authority of Singapore to manage
monetary policy.
    Singapore's benchmark three-month interest rate rose to a
four-month high on the weak local currency as investors seek
higher yields as compensation for holding it.

    CURRENCIES VS U.S. DOLLAR
    Change on the day at 0622 GMT
  Currency    Latest bid   Previous day    Pct Move
  Japan yen       124.85         125.13       +0.22
  Sing dlr        1.4135         1.4014       -0.86
  Taiwan dlr      32.201         32.080       -0.38
  Korean won     1189.39        1179.10       -0.87
 *Baht             35.37          35.37        0.00
  Peso             46.28          45.93       -0.76
  Rupiah        13810.00       13595.00       -1.56
  Rupee            64.83          64.19       -0.99
  Ringgit         4.0260         3.9615       -1.60
  Yuan            6.4453         6.3231       -1.90
 
  Change so far in 2015
  Currency    Latest bid  End prev year    Pct Move
  Japan yen       124.85         119.66       -4.16
  Sing dlr        1.4135         1.3260       -6.19
  Taiwan dlr      32.201         31.718       -1.50
  Korean won     1189.39        1099.30       -7.57
  Baht             35.37          32.90       -6.98
  Peso             46.28          44.72       -3.37
  Rupiah        13810.00       12380.00      -10.35
  Rupee            64.83          63.03       -2.78
  Ringgit         4.0260         3.4965      -13.15
  Yuan            6.4453         6.2040       -3.74
  * Financial markets in Thailand are closed for a holiday.
    
    

 (Additional reporting by KyoungHo Lee in SEOUL and Gayatri
Suroyo and Fransiska Nangoy in JAKARTA; Editing by Jacqueline
Wong)

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