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Asian currencies fall on fear of wider US-China trade war

The Indian rupee and Indonesian rupiah fare the worst on the back of global and domestic factors

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The rupiah has fallen nearly 9 per cent this year and is the region's second worst-performing currency. To help it, the Indonesian central bank has raised interest rates four times since mid-May; many analysts expect another hike this month.

Bengaluru

MOST Asian currencies dropped significantly on Monday on worries that the US-China trade dispute could escalate, deepening fears of a global trade war.

The two emerging Asian currencies most under pressure - the Indonesian rupiah and the Indian rupee - both fell sharply, partly because of worries on the global picture and because of domestic factors.

US President Donald Trump is likely to announce tariffs on about US$200 billion on Chinese imports as early as Monday, a senior administration official told Reuters on Saturday.

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Other media reports say US action would prompt immediate retaliation from China, which might cancel plans to send senior officials to Washington for trade talks soon.

Last week, Asian currencies were propped up by prospects of renewed talks between the world's two biggest economies. But implementation of fresh tariffs by the Trump administration could prompt investors to discard regional assets and seek refuge in the dollar.

Vishnu Varathan, head of economics and strategy for Mizuho Bank in Singapore, said another round of tit-for-tat tariffs between the US and China would "sour the stage for high-level US-China trade talks", in turn unnecessarily raising the bar for an agreement between the two giants.

The biggest loser early on Monday was the Indian rupee, down 1.1 per cent, followed by the South Korean won, off 1.07 per cent.

With a fall of nearly 12 per cent, the Indian rupee is Asia's worst performing currency against the dollar this year. On Friday, the Indian government announced steps on Friday to stem its decline.

India's finance minister said the government plans to cut down "non-necessary" imports, ease overseas borrowing norms for the manufacturing sector and relax rules around banks raising rupee-denominated overseas bonds.

However, analysts doubt the government's steps will stem the rupee's declines. MUFG Bank, saying the steps are "deemed to be insufficient" to stop the declines, said on Monday: "The rupee is unlikely to get much support from measures to support the rupee.

"In an environment of rising interest rates, corporates may refrain from obtaining more overseas loans, and in a risk-off environment when foreign investors are net sellers of both Indian equities and bonds, raising the foreign portfolio investment (FPI) limits is unlikely to yield more capital inflows."

The Indonesian rupiah was down more than 0.5 per cent for the day after the government posted a bigger-than-expected trade deficit for August.

South-east Asia's largest economy had a trade deficit of US$1.02 billion, much larger than the US$680 million expected in a Reuters poll.

The rupiah has fallen nearly 9 per cent this year and is the region's second worst-performing currency. To help the rupiah, the Indonesian central bank has raised interest rates four times since mid-May; many analysts expect another hike this month. REUTERS

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