Asian Currencies Mixed as PBOC Move Weakens Yuan, Won Rebounds

The Australian dollar fell after the RBA raised rates, while Asian currencies traded mixed on Tuesday. The yuan weakened after the People's Bank of China moved to slow its recent appreciation. The South Korean won rebounded, and the U.S. dollar held near a one-month low as investors weighed falling oil prices and the U.S. midterm elections.

The U.S. dollar index was little changed at 101.80. USD/KRW fell 0.5% to 1,339.30, leaving the won stronger. USD/CNH rose 0.3% to 6.6690, while the onshore USD/CNY pair gained 0.3% to 6.6702. The yen was little changed at 157.88 per dollar in holiday-thinned Japanese trading.

PBOC Lifts Reserve Ratio

The yuan's decline followed the PBOC's decision to lift the foreign-exchange reserve requirement ratio by two percentage points to 6% from 4%, effective November 15. The adjustment is expected to withdraw around $24 billion from the financial system by absorbing some of the dollar liquidity held by banks. The offshore yuan is on track for its first decline in almost three weeks.

DBS analysts said the dollar had failed to draw much support from renewed risk aversion as investors entered November cautiously ahead of Tuesday's U.S. midterm elections.

Korean Exports and Inflation

South Korea's October exports surged 93.7% year-on-year, driven by a 259.4% jump in semiconductor shipments. Inflation eased to 2.8% from 2.9%. The won's rebound follows a sharp quarterly advance of around 13% against the dollar in the third quarter, its strongest gain since late 1998.

Oil, Fed and Year-to-Date Move

Beyond the election result, investors will assess whether cheaper oil and Friday's October U.S. employment report give the Federal Reserve enough reason to reconsider its tightening bias. Brent crude fell more than 7% on Monday after Tehran said contacts with Washington aimed at ending the eight-month conflict were continuing. Reports of diplomatic engagement involving Iran and Qatar also raised hopes of progress towards a resolution and more stable Middle Eastern oil supplies.

The currency has nevertheless gained more than 5% against the dollar this year, making it one of Asia's strongest performers, supported by robust exports, trade surpluses and corporate currency conversions.