Rebounding China stocks support Asia FX

[SINGAPORE] Most emerging Asian currencies rose on Tuesday as a strong rebound in China's stocks reduced risk aversion, though persisting concerns about the world's second-largest economy limited gains in regional units.

The won rebounded on speculation that dollar bids may have been completed linked to Tesco's sale of its South Korean arm to a group led by a Seoul-based private equity firm for US$6.1 billion.

Earlier, dollar demand for the sale pushed the won to a five-year low, traders said.

Other regional units rebounded as Asia-Pacific shares outside Japan rose nearly 2 per cent with Chinese equities jumping after a morning skid. Also, the dollar slid against a basket of six major currencies.

Still, the outlook for emerging Asian currencies stayed weak as China's imports last month contracted 13.8 per cent from a year earlier, far more than a forecast 8.2 per cent decline. China is a major market for other Asian countries.

"The import decline points to slowing activity, which will likely continue to weigh on the region's export performance,"said Khoon Goh, senior FX strategist for ANZ in Singapore.

"That will continue to weigh on Asian currencies."

Malaysia's ringgit hit a pre-peg 17-year low as local stocks and government bond prices fell amid low oil prices. Indonesia's rupiah also slumped to its weakest since 1998 on concerns about capital outflows.

The ringgit lost as much as 0.9 per cent to 4.3695 per dollar, its weakest since January 1998. Malaysia pegged the ringgit at 3.8000 from 1998 to 2005.

Government bond prices continued to fall on concerns that sliding crude may hurt the country's exports and fiscal account.

Malaysia is a major supplier of liquefied natural gas and palm oil.

The rupiah slumped 0.3 per cent to 14,293 per dollar, its weakest since July 1998.

Indonesia's government bond prices and equities slid on fears of capital outflows. The 10-year bond yield jumped to 9.199 per cent, its highest since February 2014.

Traders said the central bank was spotted intervening to curb a further slide in the second-worst performing Asian currency this year.

Indonesia's foreign exchange reserves fell to US$105.35 billion at the end of August from US$107.55 at the end of July, Bank Indonesia said on Monday, adding the central bank used the reserves to defend the rupiah.

The won ended local trade up 0.2 per cent at 1,200.9 per dollar as traders cut dollar holdings, which they had built up on expectations of rising dollar demand from the Tesco's deal.

"Dollar bids were smaller than expected and there was a market talk that we may not see more demand," said a foreign bank trader in Seoul.

Earlier, the South Korean currency slid as much as 0.4 per cent to 1,208.8 per dollar, its weakest since July 2010. Such a loss prompted the foreign exchange authorities to intervene to slow its depreciation, traders said.

Foreign investors extended their selling spree in Seoul's main stock market to a 24th straight session, the longest streak since July 2008.

Foreigners dumped a combined net 4.9 trillion won (US$4.1 billion) worth of stocks during the period, the Korea Exchange data showed.

REUTERS