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Currencies fall as G-7 eases pressure

Asian currencies weakened, led by the Singapore dollar, after the G-7 industrialized nations diluted demands on the region to strengthen currencies.

Finance ministers and central bankers from the G-7 in a statement issued over the weekend omitted an April call for Asian currencies to rise. Export-oriented economies in the region benefit from a weaker currency as it makes their goods cheaper overseas, helping trade surpluses.

"They didn't mention anything more specific at the G-7 about currency appreciation," said Ko Yun-jin, assistant manager of foreign-exchange trading at Kookmin Bank in Seoul. "So people are selling back Asian currencies."

The Singapore dollar dropped 0.5 percent to S$1.5879 against its US counterpart at 4.28pm. local time, the biggest decline in seven weeks, and the Malaysian ringgit fell 0.3 percent to 3.6797. The Korean won traded at 956.50, snapping three days of gains, according to Seoul Money Brokerage Services Ltd.

"Greater flexibility in the exchange rate is desirable in emerging economies that have large current-account surpluses," the G-7 said in a statement after their meeting in Singapore. The April call for stronger currencies in Asia, especially China, was left out.

A rising yuan may reduce export competitiveness, while increasing China's buying power for Asian goods, making it easier for regional central banks to let their currencies rise.

The current account is a broader measure of trade because it includes services income. China's trade surplus was a record for a fourth month last month as exports reached an all-time high, with the gap widening to US$18.8 billion from US$14.6 billion in July, the Beijing-based customs bureau said last week.

By backtracking, G-7 officials may be seeking to avoid a repeat of the dollar's slump triggered by the statement in April.

Government officials in the US, Europe and Japan want stronger currencies in Asia to help address global imbalances in trade.

The South Korean won on April 24, the first trading day after that month's G-7 statement, climbed the most since Jan. 12.

The Singapore dollar had the biggest increase since Feb. 23 and the Taiwan dollar and Malaysian ringgit posted the largest gains since Jan. 5.

More yuan flexibility will be introduced in a "progressive manner," People's Bank of China Governor Zhou Xiaochuan (周小川) said on Sunday.

The Philippine peso, the world's best performer this month, gained for a fifth day to a four-year high after the government reported a budget surplus last month. The excess was 14 billion pesos (US$279 million), Finance Assistant Secretary Gil Beltran said in Manila.

"The peso has done quite well amongst the regional currencies," said Thio Chin Loo, senior currency strategist at BNP Paribas SA in Singapore. "One reason is the fiscal improvement we've seen."

The peso advanced 0.1 percent to 50.20 against the dollar, the strongest close since June 18, 2002, and taking gains this month to 1.2 percent, according to the Bankers Association of the Philippines. It will rise to 50 by the end of this year, Thio said.

Thailand's baht dropped 0.2 percent to 37.31 against the dollar. It is the best performer this year among the 15 Asia-Pacific currencies, gaining 10 percent.

The baht is "at par" with regional currencies and may end the year at about 37.50, Finance Minister Thanong Bidaya said.

"We look at it in such a way that as long as we have a current-account surplus, that's where the baht's level is appropriate," Thanong said in an interview in Singapore on Sunday. "The baht was quite weak in the previous two years, so it's a readjustment with trading partners."

Rising exports and tourism revenue helped caretaker Thai Prime Minister Thaksin Shinawatra's government post a current-account surplus for a second month in July and has contributed to a strengthening of the nation's currency.
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