US-China trade war concerns weigh on Asian currencies

China's yuan fell as much as 0.61 per cent to its lowest against the US dollar in more than 51/2 months, on news of a reported US government plan to curb Chinese investment in US firms involved in "industrially significant technology".
China's yuan fell as much as 0.61 per cent to its lowest against the US dollar in more than 51/2 months, on news of a reported US government plan to curb Chinese investment in US firms involved in "industrially significant technology".PHOTO: REUTERS

South Korean won and Chinese yuan hit hard, with region's equities also falling

Emerging market currencies in Asia weakened yesterday as a reported US government plan to curb Chinese investment in US tech firms weighed heavily on risk sentiment.

Asian equities retreated and Treasury bond yields declined after The Wall Street Journal said the US government was drafting rules that would block firms with at least 25 per cent Chinese ownership from buying US companies involved in "industrially significant technology".

"Sino-US trade tensions will continue to weigh on Asian currencies this week. Note that the next salvo is expected to be restrictions on Chinese investments in the United States (expected by Friday)," OCBC Bank's Terence Wu said in a note yesterday.

"Asian currencies are more reactive to USD strength this time round, compared to the late April-May period. We think this may be due to the close deadlines on the trade tension front, and the lack of stability emanating from the RMB (yuan) complex."

China's yuan fell as much as 0.61 per cent to its lowest against the US dollar in more than 51/2 months.

The People's Bank of China said on Sunday it would cut the level of cash reserves that some banks must hold by 0.5 per cent, releasing US$108 billion (S$147 billion) in liquidity. The move is aimed at accelerating the pace of debt-for-equity swaps to ease relatively tight liquidity conditions as the Chinese authorities bear down on excessive debt.

Despite the loosening of reserve requirements, the yuan fell. But it was not the biggest loser yesterday, with South Korea's won touching a level last seen in mid-November.

 
 
 

The won was 0.8 per cent weaker. South Korea's export-oriented economy leaves it vulnerable to global trade disruptions.

Singapore's dollar was 0.34 weaker with data out yesterday showing inflation quickened last month. The headline consumer price index for the city-state rose a higher-than-expected 0.4 per cent in May from a year earlier.

The Indian rupee weakened 0.39 per cent against the dollar, on track to fall for the first time in four sessions. The Philippine peso lost about 0.31 per cent.

The Indonesian rupiah fell 0.48 per cent against the US dollar after data from the country's statistics bureau showed a 28.1 per cent jump in imports last month, influenced by higher oil prices, leading to a US$1.52 billion trade deficit.

The large spurt in imports overshadowed a 12.5 per cent rise in exports over the same period.

 
A version of this article appeared in the print edition of The Straits Times on June 26, 2018, with the headline 'US-China trade war concerns weigh on Asian currencies'. Print Edition | Subscribe