Asian currencies recorded their biggest weekly drop in four years as China’s surprise yuan devaluation deepened concerns about a slowdown in the world’s second-biggest economy.
Malaysia’s ringgit and Indonesia’s rupiah sank to 17-year lows and stock markets across the region tumbled after the People’s Bank of China cut the yuan’s reference rate by 1.9 percent on Tuesday, triggering its biggest decline in two decades.
The move came days after data showed Chinese exports shrank for a fifth month last month, adding pressure on exchange rates that were already depreciating amid signs the US Federal Reserve will raise interest rates for the first time in a decade.
“The primary reason for weaker Asian currencies has been the one-off devaluation of the Chinese yuan and the subsequent depreciation,” Singapore-based Societe Generale AG head of Asia currency strategy Jason Daw said. “We expect further downward pressure leading up to expected Fed tightening.”
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, retreated 2.1 percent from Friday last week, its biggest weekly drop since September 2011.
The New Taiwan dollar fell 1.9 percent to NT$32.368 to the US dollar this week.
The ringgit slumped 3.8 percent, the yuan sank 2.8 percent, the rupiah fell 1.8 percent, and India’s rupee weakened 2.1 percent. Vietnam’s dong slid 1.3 percent after the central bank widened the currency’s trading band on Wednesday.
The yuan recorded its steepest two-day fall since 1994 following devaluation, before the declines eased as China’s central bank signaled support for the currency and amid speculation the authorities intervened to limit its slide.
The rupiah plunged to 13,831 to the US dollar on Wednesday, the weakest since July 1998, after Indonesian President Joko Widodo named a former central bank chief as economy minister in a Cabinet revamp aimed at boosting growth.
The ringgit also sank to a 17-year low this week, sliding beyond 4 per dollar as investors shrugged off better-than-expected economic data to focus on a drop in energy prices that’s cutting earnings for Malaysia, a net oil exporter.
Malaysia’s GDP rose 4.9 percent last quarter from a year earlier, more than the 4.5 percent median estimate in a Bloomberg survey, data showed on Thursday.
The current-account surplus narrowed to 7.6 billion ringgit (US$1.9 billion) from 10 billion ringgit, but beat the forecast 6.1 billion ringgit.
“With oil prices lower overnight and the market looking past yesterday’s better Malaysian second-quarter GDP and current-account numbers, ringgit remains vulnerable,” Singapore-based Australia & New Zealand Banking Group Ltd strategist Khoon Goh said.
Elsewhere in Asia, the Philippine peso declined 1.1 percent and Thailand’s baht weakened 0.4 percent.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
PRESSURE EXPECTED: The appreciation of the NT dollar reflected expectations that Washington would press Taiwan to boost its currency against the US dollar, dealers said Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday. Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent. The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading
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