Weak China factory activity hits Asia FX, another weekly losses seen

[SINGAPORE] Most emerging Asian currencies fell on Friday extending their declines for the week as a disappointing survey on China's manufacturing activity added to worries about a slowdown in the world's second largest economy.

Regional currencies came under further pressure after China's cabinet said the country will widen two-way fluctuation in the yuan exchange rate to support its trade sector.

Indonesia's rupiah hit a fresh 17-year low of 13,457 per dollar. The weak Chinese factory sector dampened commodity prices, adding to concerns over sluggish exports of Southeast Asia's top economy.

The Thai baht slid closer to a six-year trough despite a central bank warning against its rapid fall. The currency was set to post its largest weekly loss in two years on capital outflows with the economy slowing.

South Korea's won turned weaker to hit a three-year low at 1,168.8 per dollar to suffer the longest weekly losing streak in four years. Offshore funds continued to sell the currency and Seoul shares.

The Singapore dollar slid as the city-state's industrial production in June fell more than expected.

Activity in China's factory sector contracted at the fastest pace in 15 months in July, a preliminary private survey showed earlier.

"The weak China PMI is increasing concerns about near-term growth in the region, which will continue to put pressure on Asian currencies," said Khoon Goh, senior FX strategist for ANZ in Singapore, referring to the flash Caixin/Markit China Purchasing Managers' Index.

To cope with slowing regional economies, some Asian central banks such as the People's Bank of China, Bank Indonesia and the Bank of Thailand, are expected to ease monetary policies further, Mr Goh said.

By contrast, the US Federal Reserve is expected to raise interest rates as soon as September. Latest data showed the number of Americans filing new applications for unemployment benefits last week dropped to its lowest level in more than 41-1/2 years.

A Reuters poll released on Thursday showed sentiment towards most emerging Asian currencies had deteriorated in the last two weeks. Bearish bets on the baht hit the largest since January 2014.

For the week, the baht led regional declines. The Thai currency has lost 2.1 per cent against the dollar throughout the week, Thomson Reuters data showed. That would be the largest weekly loss since August 2013.

The Thai unit on Thursday fell to 34.901 per dollar, its weakest since May 2009.

A rapid fall in the currency could cause problems for the real economic sector, Assistant Bank of Thailand Governor Chantavarn Sucharitakul told reporters.

But the central bank has not been spotted intervening to support the baht yet, while importers' "panic" demand for the dollar had put pressure on the Thai currency, traders said.

"From a trader perspective, verbal intervention seldom has any real bite in curbing currency moves," said Stephen Innes, senior trader for FX broker Oanda in Singapore. He expected further weakness in the baht.

The won followed the baht with a 1.7 per cent loss against the dollar so far this week. That would mark a fifth consecutive week of loss, which would be the longest weekly decline since October 2011, Thomson Reuters data showed.

South Korea's economy in the second quarter reported its weakest growth in six years, hurt by a deadly virus outbreak, dry weather and poor exports.

The rupiah has lost 0.8 per cent so far this week on importers' dollar demand for month-end payments. India's rupee also slid 0.8 percent and the Philippine peso dropped 0.5 per cent. The Singapore dollar has declined 0.3 percent.

The Malaysian ringgit was barely changed as the central bank was spotted intervening to support the worst-performing Asian currency of the year so far, traders said.

The country's foreign exchange reserves fell to US$100.5 billion as of July 15 from US$105.5 billion as of June 30, the central bank data showed on Thursday.

Traders said central bank intervention intensified after a political storm raged around Prime Minister Najib Razak following a Wall Street Journal report on state-fund 1MDB alleged that US$700 million had been transferred into accounts held by Najib.

Reuters has not verified the Wall Street Journal report. Najib has denied taking any money for personal gain and said the corruption allegations are part of a malicious campaign to force him out of office.

REUTERS