February 25, 2018, 10:08 am
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Asia FX sluggish

Asian currencies were largely shackled by an uncertain outlook for the dollar, with trading on Wednesday reflecting the twin conditions of tax-cut hopes in the United States and fears of a possible government shutdown.

A selloff in technology stocks on Wall Street also dampened the mood, with equities across Asia sliding 1 percent and keeping pressure on some of the regional currencies.

The dollar was caught in a tug-of-war as expectations of higher US interest rates clashed with policy uncertainty in Washington. A flattening US bond yield curve added to the frustration of greenback bulls.

While the Republican-controlled House of Representatives voted on Monday to go to conference with the Senate to begin formal negotiations on the tax bill, the possibility of a US government shutdown loomed large if lawmakers fail to reach a budget accord this week.

In Seoul, the losses on Wall Street saw foreign investors pull out of the equities market, hitting the South Korean won, which weakened 0.78 percent against the dollar.

The benchmark Kospi index was nearly 1 percent lower, though it was up 22.7 percent so far this year.

“Most stock markets in Asia are easing, so the slump in won could be linked to equity outflows,” said Chang Wei Liang, an FX strategist with Mizuho Bank.

Wei Liang cautioned that regional currencies could come under more pressure if the equities continued to lose ground.

The Taiwanese dollar, which was also influenced by equity flows, eased slightly after the country’s benchmark equity index fell 1.6 percent.

Moving in the opposite direction, the Malaysian ringgit pulled up after the country’s export growth in October beat expectations, breaking a two-month streak of slowing annual growth as demand for manufactured and mining goods improved.

The ringgit has been on an uptrend since early November, helped by a strong economy and rate rise expectations.

The Indian rupee eased 0.1 percent ahead of a central bank policy decision.

The Reserve Bank of India (RBI) is set to keep its rates unchanged at its meeting on Wednesday, a Reuters poll showed, with policy makers expected to reiterate their concerns about a recent uptick in inflation.

“Policy guidance, divided between a neutral or a hawkish bias, will be key to watch,” DBS Group said in a note.

“Inflationary risks and firm Q2 FY18 growth numbers provide the central bank with sufficient justification to sound cautious.”

The yuan spot rate was 0.08 percent firmer against the dollar despite a weaker fix by the central bank, while volatility in the local currency declined following this week’s launch of a new trading system. – Reuters 
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