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Firm dollar, yuan worries hurt Asia FX, ringgit near 17-year lows

[SINGAPORE] Emerging Asian currencies slid on Monday as the dollar climbed on growing expectations of a US rate hike next month, while investors remained wary of further weakness in the Chinese yuan.

The renminbi held steady as the central bank fixed its official guidance rate firmer, indicating sustained efforts to stabilise sentiment after last week's devaluation.

Malaysia's ringgit hovered a near its 1998 pre-peg lows on an extended selloff in local stocks and bonds amid fears of capital outflows. Falling oil prices deepened concerns about Malaysia's exports.

The South Korean won slid as offshore funds sold the currency and foreign investors sold Seoul shares.

Thailand's baht touched a six-year low on stock outflows, although it pared some of its earlier losses after second-quarter growth came in stronger than expected.

The US dollar rose against a basket of six major currencies. Encouraging data on US producer prices and industrial output added to prospects that the Federal Reserve may raise interest rates at the next policy meeting in September.

Such expectations eased as the surprise of China's currency devaluation last week raised concerns that a cheaper yuan would hurt the US economy and the Fed may not hurry to raise borrowing costs.

Emerging Asian currencies failed to rebound even when expectations of higher US interest rates weakened.

Last week, regional units dropped to multi-year lows as China devalued the yuan after a run of disappointing economic indicators suggested the economy needs further stimulus. That prompted fears of a "currency war." "Emerging Asian currencies are expected to stay weak. RMB devaluation via the midpoint last week is likely to be part of the broader stimulus package. So, I see further RMB weakness and more two-way volatility," said Christopher Wong, a senior currency analyst at Maybank in Singapore.

"A recent run of US data remains consistent with our base-line scenario for a September rate hike."

The ringgit lost up to 1.4 per cent to 4.1370 per dollar in thin liquidity, compared to Friday's low of 4.1500, its weakest since Sept 1 1998. Malaysia pegged the ringgit at 3.8000 from September 1998 until 2005.

Kuala Lumpur stocks dropped 1.5 per cent to a three-year low, while the five-year government bond yield rose as high as 4.036 per cent, its highest since November 2008.

Foreign investors in Malaysia's bond markets have stayed put through months of economic and political uncertainty but a sudden spurt in currency volatility appears to be testing that allegiance.

Oil prices fell to near six-year lows, heightening concerns over Malaysian exports as the country is a big supplier of liquefied natural gas and palm oil.

Malaysia's exporters bought the ringgit on dips, helping the currency pare some of earlier losses, traders said.

The won fell as foreign investors were net sellers in South Korea's main stock exchange for an eighth consecutive session.

They have unloaded a combined net 1.15 trillion won (S$1.37 billion) of equities during the period, the Korea Exchange data showed.

The won found little support from corporate demand as local exporters stayed away on expectations of further depreciation, traders said.

Traders stayed cautious over possible intervention by the foreign exchange authorities to stem the won's weakness.

The baht slid as much as 0.5 per cent 35.416 per dollar, its weakest since April 2009.

The Thai currency pared some of losses after data showing Southeast Asia's second-largest economy grew 0.4 per cent in the second quarter from the previous three months, slightly better than expected.