SINGAPORE Asian currencies surged on Thursday, with the offshore Chinese yuan jumping to its strongest level in nearly two months, as a spike in funding costs prompted yuan short sellers to square positions.
The offshore yuan climbed to as high as 6.7850 per U.S. dollar, as of 0640 GMT, its strongest level since Nov. 9.
China has stepped into both its onshore and offshore yuan markets to shore up the faltering yuan this week, sparking speculation that it wants a firm grip on the currency ahead of U.S. President-elect Donald Trump's inauguration on Jan. 20. [nL4N1EV20E]
Market participants said the surge in the offshore yuan helped spur some scaling back of long U.S. dollar positions and short-covering in Asian currencies.
"The move helped to trigger some profit-taking in the dollar by weakening the outflows story from China," said Philip Wee, senior currency economist for DBS Bank.
The onshore yuan also climbed on Thursday, hitting a one-month high at 6.8720 per U.S. dollar.
The South Korean won rose about 1.7 percent in onshore trading on Thursday. The Taiwan dollar gained 1 percent and the Indonesian rupiah climbed 0.8 percent.
A local bank dealer in Seoul said the won is taking cues from the offshore yuan now, adding that long dollar positions were likely to be reduced ahead of U.S. jobs data due on Friday.
A drop in U.S. bond yields and the greenback's broadly weaker tone also helped lift Asian currencies, traders said. [nL1N1EU1L2] [nL4N1EV1MR]
Asian currencies could rise further in the near-term on short-covering, said a trader for a Japanese bank, adding that this is especially the case since the yuan could see more gains if its funding costs stay high.
The implied overnight deposit rate for offshore yuan spiked to more than 96 percent at one point on Thursday.
Asian currencies had been under pressure since early November as U.S. bond yields and the dollar jumped on expectations that Trump's proposals for infrastructure spending and tax cuts will boost U.S. economic growth and inflation.
(Reporting by Masayuki Kitano; Additional reporting by Michelle Chen in HONG KONG and Yena Park in SEOUL; Editing by Richard Borsuk)