Yuan, Asian currencies fall after North Korean missile launch

Japanese PM calls firing of weapon into the Sea of Japan “unforgivable conduct”. Onshore yuan traded at 6.6527 to the US dollar by 4pm, down 0.22pc

PUBLISHED : Wednesday, 24 August, 2016, 5:08pm
UPDATED : Wednesday, 24 August, 2016, 10:51pm

The Chinese yuan and other Asian currencies fell on Wednesday, amid escalating geopolitical tensions over the North Korean missile launch – an act which Japanese prime minister Shinzo Abe described as “unforgivable conduct.”

Onshore yuan traded in Shanghai weaker by 0.26 per cent to 6.6550 to the greenback in earlier trading, just shy of the one-month low of 6.6659 it touched on Monday. It bounced back to 6.6527 by 4pm, still down 0.22 per cent. Offshore yuan traded in Hong Kong was quoted at 6.6660 to the US dollar by 4pm, weaker by 0.14 per cent.

“The North Korea missile news will probably have a knock-on effect on regional emerging Asian currencies, which are currently back-peddling on heightened uncertainty over the US Federal Reserve’s monetary policy,” said Stephen Innes, senior trader at OANDA.

“Generally, when economic uncertainty increases, FX risk and carry positions tend to do poorly, so emerging markets fall under pressure,” he added in a morning note.

Both US and South Korean officials said the missile had flown 500 kilometres, before falling in the Sea of Japan, reportedly inside of Japan’s Air Defence Identification Zone.

Abe said: “This poses a grave threat to Japan’s security, and is an unforgivable act that damages regional peace and stability markedly.”

Asian currencies also came under pressure after one person was reported killed and 30 were wounded as two bombs ripped through a hotel in the coastal town of Pattani.

“Given that tourism contributes a hefty 10 per cent of the Thai economy, this act of domestic terrorism may leave travellers second-guessing their Thai holidays,” Innes said.

The Malaysian ringgit was trading at 4.0360 to the US dollar at 4pm, weaker by 0.27 per cent while the Thai baht was worth 34.63 to the greenback, weaker by 0.06 per cent.

The yuan fell despite the People’s Bank of China setting its daily reference rate against the US dollar at 6.6420, 0.25 per cent per cent or 166 basis points higher than Tuesday when it set the mid-price 0.1 per cent stronger.

This came after the central bank on Monday set the reference price 441 points, or 0.67 per cent lower, the biggest cut since August 11 last year, when it cut the level by almost 2 per cent.

The PBOC allows the yuan to be traded 2 per cent in either direction of the mid-price and traders use that as a guidance for the direction of the yuan.

The US dollar traded stronger against other major currencies.

Innes said the Jackson Hole meeting, starting from Thursday, when Federal Reserve chairwoman Janet Yellen is expected to hint at possible US interest rate moves, will be closely watched.

Analysts now expect a rise in September, which could strengthen the US currency.

The US dollar traded at 100.30 yen at 4pm, a 0.07 per cent weakening in the Japanese currency. A British pound was worth US$1.3180, weaker by 0.08 per cent, while the euro was worth US$1.1290 weaker by 0.7 per cent, its fourth fall in as many days more than 0.5 per cent.

The Hong Kong dollar remained on the strong side of the peg that it is trading at 7.7536 to the greenback, similar to Tuesday and shy of the year’s high of 7.7503 on January 4.