China has stepped into both its onshore and offshore yuan markets to shore up the faltering yuan this week, sparking speculation that it wants a firm grip on the currency ahead of US President-elect Donald Trump's inauguration on January 20. Market participants said the surge in the offshore yuan helped spur some scaling back of long US dollar positions and short-covering in Asian currencies.
"The move helped to trigger some profit-taking in the dollar by weakening the outflows story from China," said Philip Wee, senior currency economist for DBS Bank. The onshore yuan also climbed on Thursday, hitting a one-month high at 6.8720 per US dollar. The South Korean won rose about 1.7 percent in onshore trading on Thursday. The Taiwan dollar gained 1 percent and the Indonesian rupiah climbed 0.8 percent.
A local bank dealer in Seoul said the won is taking cues from the offshore yuan now, adding that long dollar positions were likely to be reduced ahead of US jobs data due on Friday. A drop in US bond yields and the greenback's broadly weaker tone also helped lift Asian currencies, traders said. Asian currencies could rise further in the near-term on short-covering, said a trader for a Japanese bank, adding that this is especially the case since the yuan could see more gains if its funding costs stay high.
The implied overnight deposit rate for offshore yuan spiked to more than 96 percent at one point on Thursday. Asian currencies had been under pressure since early November as US bond yields and the dollar jumped on expectations that Trump's proposals for infrastructure spending and tax cuts will boost US economic growth and inflation.
Copyright Reuters, 2017