The yuan had a monthly decline on speculation China will limit gains to protect exporters as global economic growth falters. The currency fell 0.23 percent to 6.3085 per dollar in Shanghai, according to the China Foreign Exchange Trade System.

China is scheduled to release a manufacturing purchasing managers' index for January tomorrow. Economists surveyed by Bloomberg estimate the gauge will be at 49.6, compared with 50.3 in December. Fifty is the dividing line between contraction and expansion. People's Bank of China adviser Li Daokui said there are signs the yuan is near its equilibrium level, Xinhua News Agency reported last week.

“Investors are worried about China's export outlook as the European debt crisis lingers,” said Banny Lam, a Hong Kong- based economist at CCB International Securities Ltd., a unit of China's second-largest bank. “Possible capital outflows also add to the concern.”

Eoin Treacy's view Euro/Dollar may still be the most important currency pair in the world but it is no longer a reflection of the growth potential in the global economy. Both jurisdictions are beleaguered with excessive government debt, weak banking sectors, subpar growth, and deliberate inflation targeting by their respective central banks. While the Eurozone crisis has clearly been of the most concern to investors of late and the rate has been prone to a great deal of volatility, it has been mostly rangebound, albeit with a downward bias, since 2008.

The Euro rallied to test the 8-month downtrend against the Dollar over the last couple of weeks and at least partially unwound the oversold condition relative to the 200-day MA. It encountered at least short-term resistance in the region of $1.32 yesterday and a sustained move above that area would be required to question current scope for some additional downside.

Asian currencies have outperformed the US Dollar by a wide margin over the last decade, albeit with some notable bouts of volatility. The US economy has returned to a growth trajectory but is doing so with the help of extraordinarily low interest rates and easy monetary policy. In the competitive world of globalisation no country wants a strong currency but some need a weak currency more than others. The USA and Europe are competing for the weakest currency especially when compared to the rest of the world.

A number of Asian countries have by contrast spent much of the last few years raising interest rates, curtailing lending and combatting asset appreciation. China has allowed the Renminbi to appreciate by 9.275% against the US Dollar since April 2010, reserve requirements are now at 21% (down 50 basis points since early December) and the 12-month lending rate has been held at 6.56% since July. China has also implemented a wide range of measures to curtail speculation in the property market. These measures have begun to show results. Property prices are declining and the economy is slowing. On my last trip to China in October, many factories I visited complained of margin compression, an inability to access funding and reduced overseas demand. It would appear to be only a matter of time before China reverses its tightening bias. .

Wider Asia has not been immune from the challenges facing Europe and the USA. China's growth is slowing, Taiwan's economy shrank in the last quarter and a number of countries have already begun to cut interest rates. Indonesia has cut 75 basis points from the Reference rate since October. The Philippines announced a quarter point cut in early December. Thailand has cut 50 basis points from the Repurchase Rate since late October. Australia has cut 50 basis points from the Cash Target Rate since October. India, Taiwan, Malaysia, South Korea and New Zealand have all paused in raising rates but have yet to begin cutting. Interest rate differentials can therefore be expected to contract.

Asian countries will not have to resort to quantitative easing to promote growth. More than either the USA or Europe the region reloaded the interest rate gun since 2010. For the most part, governments are not overburdened with debt, they lead the world in the growth of their respective middle classes and the corporate sector is thriving. In addition to China's continued infrastructure development, India and Indonesia have announced major infrastructure development projects.

The Asian Dollar Index found at least near-term support in the region of 115 from late September. This area coincides with the 2008 peak. It rallied impressively this month to challenge the November high and is now trading back above the 200-day MA. A sustained move below the December low would be required to question medium-term scope for additional higher to lateral ranging.

The Indian rupee has posted its largest rally since at least early 2009 and while somewhat overbought in the very short term a sustained move above R50 would be required to question medium-term Dollar underperformance.

The US Dollar has pulled back to test the 200-day MA against the Indonesia Rupiah and a sustained move below IDR8900 will be required to confirm a medium-term peak. The Korean Won spot rate has a similar pattern.

The greenback has pulled back to test the November low against the Malaysia Ringgit and while some steadying may be expected at this level, a sustained move above MYR3.1 would be required to question supply dominance. The US Dollar has broken its November low against the Taiwan Dollar and while some steadying can be expected, a clear upward dynamic would be required to challenge TWD outperformance. .

The US Dollar rallied least against the Philippine Peso during the Q3 rally and has since given up most of the advance. The Singapore Dollar has a similar pattern.

The Thai Baht weakened most against the US Dollar from September, in line with the Thai government's desire for a weaker currency. However, the Dollar has posted its largest reaction in quite some time and is currently testing the 200-day MA. A sustained move below it, currently near THB31, would confirm a return to medium-term Baht strength.

Amid the likelihood of interest rate cuts and the recovery from the Q3 stock market and currency market correction, investors in Asian fixed income appear to have been relative nonplussed. Yields for Chinese, Indonesian, Taiwanese, Thai and Malaysian 10-year bonds remain in relatively consistent downtrends. Singaporean and South Korean yields have paused but retain a downward bias. Indian yields have posted their largest reaction in more than two years. A sustained move above 8.6% would be required to question medium-term demand dominance.

Fixed income investors appear eager to lock in yield before interest rates fall further. The relative strength of both Asian currencies and stock markets suggests investors are betting that a reversal of the tightening bias will spur regional growth and local stock market performance.