Won Leads Asian Currency Rally as China Curbs Yuan Speculation

Updated on
  • PBOC said to be making it harder to bet on yuan weakness
  • Taiwan's dollar gains most since June, won strengthens 1%

Asian exchange rates rallied amid optimism a move by China’s central bank to make it harder to bet on yuan weakness will limit drops in the currency that are harming regional exports.

The People’s Bank of China will impose a reserve requirement on financial institutions trading in foreign-exchange forwards for clients, according to six people familiar with the matter. The changes, which take effect Oct. 15, will mandate a deposit of 20 percent of sales to be held at zero interest and frozen for a year, said the people, who asked not to be identified because they aren’t authorized to speak publicly.

South Korea’s won rallied 1 percent in its best performance in more than two weeks, and Taiwan’s dollar closed up 0.4 percent, the biggest one-day gain since June. China’s yuan strengthened 0.19 percent, while 12-month forwards increased 0.26 percent. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies, rose 0.2 percent. 

“China’s moves to impose a reserve requirement led to strength in Asian currencies overall, including the won,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul. “Chinese authorities have expressed their will to limit large swings in the currency.”

The onshore yuan weakened 2.6 percent in August, the most in more than two decades, as China devalued the currency and introduced a more market-driven method of setting its daily reference rate. The PBOC cut interest rates for the fifth time since November on Aug. 25 and lowered the amount of cash banks must set aside in an attempt to stem the biggest stock-market rout since 1996 and revive an economy forecast to expand the least since 1990.

A weaker yuan is a threat to exporters from Asian nations that compete with Chinese counterparts in international markets. South Korean shipments fell 14.7 percent in August from a year earlier, the most in six years, according to data released Tuesday. Taiwanese overseas sales are forecast to have dropped 12.7 percent last month, according to a Bloomberg survey before figures due Sept. 7.

Elsewhere in Asia, Malaysia’s ringgit climbed 0.7 percent, India’s rupee strengthened 0.2 percent and Thailand’s baht rose 0.3 percent. The Philippine peso advanced 0.1 percent, while Indonesia’s rupiah dropped 0.3 percent.