Risk sentiment worsened midweek as an inversion in the US Treasury yield curve raised fears of a recession there, with several major economies including China and Germany already under the pump. That explains the limited gains for regional currencies on the day as Sino-US trade tensions remained high, even after Washington delayed tariffs on some Chinese imports earlier in the week.
Beijing has also vowed to retaliate with more duties on US imports a day after President Donald Trump linked peaceful handling of Hong Kong civil unrest to a trade deal with China. "There is pressure on Asian currencies given this environment where we have negative news on the trade front alongside poor Asia data, and for these currencies to gain ground, we need to have some real improvement in US-China trade developments," said Irene Cheung, senior Asia strategist at ANZ Banking Group (Singapore).
The Philippine peso rose 0.6%, while the Indonesian rupiah strengthened as much as 0.3%, but both currencies were poised for weekly losses of 0.8% and 0.3%, respectively. The Singapore dollar and the Taiwan dollar gained up to 0.2% each, and the two were also set to post slight weekly losses. The Indian rupee and the South Korean won gained slightly, while the Chinese yuan edged lower.
The Malaysian ringgit rose 0.4% and is set to post 0.2% gain for the week. The Malaysian central bank announced further liberalisation of its foreign exchange administration (FEA) policy, saying it would provide businesses with greater flexibility in managing their foreign exchange risks and daily operations. The measures do not take effect until the end of August, and there was no reaction in the thinly traded onshore ringgit. But offshore non-deliverable forwards, which most overseas investors use to hedge risks, saw the value of ringgit in forwards rise in anticipation of less pressure in the offshore segment.
The one-year NDFs fell to 4.955 per dollar from Thursday's highs of 4.2655 per dollar. The spot ringgit is expected to weaken when the measures take effect on Aug. 30, in anticipation that more hedging of foreigners' ringgit liabilities will move onshore. The measures come in the wake of FTSE Russel's review, announced in April, of Malaysia's market accessibility level in its World Government Bond Index due to concerns about liquidity.
Earlier in the day, data showed Malaysia's economy grew faster-than-expected in April-June, making it the first Southeast Asian nation to report an acceleration in growth from the previous quarter, driven by stronger consumer spending and palm oil production.