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Most Asian currencies traded sideways on Wednesday as investors weighed

the potential fallout from U.S. House Speaker Nancy Pelosi’s visit to Taiwan, which has enraged

China, while South Korea’s won and the Indonesian rupiah saw modest losses.

The safe-haven Japanese yen, which appreciated more than 2% during the past few

sessions, was pressured by an uptick in U.S. Treasury yields following hawkish comments by U.S.

Federal Reserve officials and an easing of geopolitical tensions.

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The won weakened for the fourth straight session, declining as much as 0.8% to

touch a near two-week low, while the rupiah depreciated 0.2% – its third straight day of

losses – as U.S.-China tensions simmered.

Among other regional currencies, the Malaysian ringgit, Thai baht,

Philippine peso, Singapore dollar and Taiwanese dollar all drifted within

tight ranges.

U.S. Treasury yields jumped overnight after Fed officials signaled their resolve to tame

inflation by hiking interest rates, although yields slipped early on Wednesday as China dialed

up measures against Taiwan over Pelosi’s visit to the island, which it considers part of its

territory.

“The immediate focus for markets shifts to … the risk of escalation once the U.S. House

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Speaker leaves the region,” Stephen Innes, SPI Asset Management managing partner, said in a

note.

Market will then consider whether there should be a “medium-term repricing of risk in

Taiwan-sensitive assets, including the Taiwan dollar and equities and likely some contagion

effect across Asia market,” Innes added.

Meanwhile, bond yields on high-yielding notes in the region – India and

Indonesia – tracked their U.S. peers, ticking higher to 7.245% and 7.253%,

respectively.

Indonesia, Southeast Asia’s biggest economy, likely grew in June quarter, helped by strong

exports and private consumption, a Reuters poll showed. However, a slowdown in China and global

recession risks posed significant risks in coming months.

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In India, the rupee traded flat at a five-week high, which it touched in the prior

session, helped by portfolio inflows and dollar sales by exporters.

Gaurang Somaiya, associate vice president at Motilal Oswal Financial Services, expected the

market to be cautious ahead of the Reserve Bank of India’s (RBI) monetary policy decision on

Friday, with its stance on inflation and growth likely to influence the rupee.

Analysts differ on the size of an expected RBI rate hike, with Barclays, Citi, and DBS

expecting a 35 basis points (bps) hike, while predictions from 63 economists polled by Reuters

ranged from a 25 bps to 50 bps hike.

Somaiya expects a 35 bps hike and sees the RBI maintaining a hawkish stance, thereby keeping

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the rupee supported at lower levels, he added.

Regional equities were broadly higher, advancing up to half a percent, while Malaysia’s

shares were down as much as 0.8%

HIGHLIGHTS:

** U.S. 2-year yields, which reflect rate expectations, at 3.0162%

** China July services activity expands at quickest pace in 15 months – Caixin PMI

** Singapore bank OCBC’s Q2 profit jumps 28%, upbeat on outlook

Asia stock

indexes and

currencies

at 0351 GMT

COUNTRY FX FX FX INDEX STOCKS STOCKS

RIC DAILY % YTD % DAILY % YTD %

Japan +0.17 -13.43 0.5 -3.7

China -0.02 -5.87 0.40 -12.11

India -0.06 -5.63 0.00 -0.05

Indonesia -0.19 -4.48 0.25 6.44

Malaysia -0.04 -6.53 -0.56 -3.31

Philippines +0.00 -8.29 0.24 -10.46

S.Korea -0.39 -9.25 0.56 -17.61

Singapore +0.04 -2.32 0.26 3.97

Taiwan -0.05 -7.78 -0.11 -19.14

Thailand +0.06 -7.76 0.08 -4.05

(Reporting by Sameer Manekar in Bengaluru; Editing by Kim Coghill)