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.
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