Prior to the market open, the central bank set the midpoint rate for the currency at 6.3306 per dollar, 75 points weaker than the previous day's 6.2298 level. The guidance rate — which marked the weakest level for the currency since October 2012 — sent shockwaves through the region's markets.
The Australian dollar fell as much as 1 percent to touch a six-year trough of $0.7216, while its Antipodean peer, the New Zealand dollar, eased 0.6 percent to trade at its lowest since July 2009 against the greenback. Southeast Asian currencies were similarly spooked; the Singapore dollar dropped to a fresh five-year low of 1.4149, while the Indonesian rupiah and Malaysian ringgit hit fresh lows unseen since the Asian Financial Crisis (AFC) in 1998.
Also weighing on sentiment was a negative handover from Wall Street overnight, where major U.S. indices lost their footing as the unexpected weakening of the yuan took a toll on commodity-related shares and fueled worries about global growth. The blue-chip Dow and Nasdaq Composite dropped 1.21 and 1.27 percent, respectively, while the S&P 500 lost 0.96 percent Tuesday.
The Chinese central bank took investors around the world by surprise early Tuesday when it implemented what it said was a one-time yuan depreciation of nearly 2 percent, causing the currency to suffer its biggest fall in over two decades.