Asian currencies dive on US fears

TRYING TIMES AHEAD::Regional central banks are under immense pressure to shore up currencies as the end of US stimulus looms, analyst Andy Ji said

Bloomberg

Sun, Aug 18, 2013 - Page 15

The Indian rupee and Indonesia’s rupiah led a weekly loss in Asian currencies fueled by increasing speculation that the US will scale back monetary stimulus as the world’s biggest economy improves.

Indonesia’s currency slumped to the weakest level since 2009 and the rupee dropped to a record-low amid concern about widening current account deficits. India has seen its foreign exchange reserves sink as much as 7 percent this year to US$277 billion, while Indonesia’s holdings shrank 18 percent to US$92.7 billion.

The New Taiwan dollar declined 0.2 percent this week to NT$30.002 compared with NT$29.955 on Aug. 9, as the local bourse staged a rebound to put downward pressure on the greenback, dealers said.

As with recent sessions, the central bank once again jumped onto the trading floor in the late trading session on Friday to slow down the pace of the NT dollar’s appreciation and push the greenback back to the NT$30 level, dealers said.

It was the fourth consecutive session in which the US dollar closed above that level.

“Central banks are being tested, especially those in Indonesia and India,” said Andy Ji, a foreign exchange strategist at Commonwealth Bank of Australia in Singapore. “People just don’t have the confidence that they have enough reserves to shore up their currencies.”

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most active currencies excluding the yen, lost 0.5 percent during the week to 115.35 in Singapore.

The rupee fell 1.3 percent to 61.66 per US dollar and reached an unprecedented 62.005 on Friday, while the rupiah dropped 0.96 percent to 10,385 this week and touched 10,435 on Friday, the lowest since June 2009.

The Reserve Bank of India increased efforts this week to stem the rupee’s plunge by cutting the amount local companies can invest overseas without seeking approval from 400 percent of their net worth to 100 percent. The Indian central bank has also tightened cash supply, restricted currency derivatives and curbed gold imports.

The rupee depreciated 11 percent this year, the second-worst performance among Asia’s 12 most-traded currencies.

India’s current account deficit was an unprecedented 4.8 percent of GDP in the 12 months through March. New Delhi aims to narrow that to 3.7 percent this year, Indian Minister of Finance Palaniappan Chidambaram told parliament on Wednesday.

Indonesia’s central bank reported on Friday that the second-quarter current account deficit widened to a record US$9.85 billion, from US$5.82 billion in the first three months of the year. Policy makers held the benchmark reference rate at 6.5 percent this week, as predicted by 16 of 25 analysts surveyed by Bloomberg.

“Bank Indonesia has become more tolerant to the rupiah trading lower,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp in Singapore. “The main problem is the current-account position, which increasingly looks like it will stay for a while and isn’t easily solved by monetary policy alone.”

Malaysia’s ringgit slid 0.7 percent to 3.2770 per US dollar this week and reached a three-year low of 3.2838 on Friday after Moody’s Investors Service said the country’s sovereign rating could come under pressure due to the government’s weakening fiscal position.

Malaysia’s current account is forecast to have swung to a deficit of 1 billion ringgit (US$305 million) in the second quarter, from a surplus of 8.7 billion ringgit in the prior three months, according to the median estimate in a Bloomberg News survey before government data due on Wednesday.

Elsewhere in Asia, the Philippine peso dropped 0.3 percent to 43.63 per US dollar this week, South Korea’s won lost 0.1 percent to 1,113.59 and Thailand’s baht fell 0.1 percent to 31.27. China’s yuan rose 0.2 percent to 6.1130 and reached a 19-year high of 6.1090 on Friday.

The US dollar rallied against the majority of its 16 most-traded peers as economic data exceeding forecasts spurred speculation that the US Federal Reserve will trim the pace of its bond purchases as early as next month.

The Bloomberg US Dollar Index rebounded from a decline last week as jobless claims decreased to their lowest level since 2007. The euro gained versus the yen as a report showed the 17-nation region pulled out of recession.

The index, which tracks the greenback against 10 other major currencies, gained 0.5 percent to 1,022.06 this week in New York.

The US tender gained 0.1 percent to US$1.3329 per euro and climbed 1.4 percent to ¥97.53, the biggest gain since July 19. Japan’s currency dropped 1.3 percent to ¥130 per euro.

The euro rallied 5.1 percent this year, the most among 10 developed market currencies tracked by Bloomberg Correlation-Weighted Indexes, while the US dollar rose the second-most with 3.9 percent. The Australian dollar dropped 9.4 percent and the yen slipped 8.8 percent to lead decliners.

Britain’s pound strengthened 3.1 percent in the past month versus the US dollar as reports showed purchasing managers’ indices of manufacturing, services and construction all improved last month, while house prices increased and jobless claims fell twice as fast as predicted. The British economy expanded by 0.6 percent in the second quarter.

The UK currency rose 0.9 percent to US$1.5629 after touching US$1.5657 on Friday, the strongest level since June 19. Sterling gained 0.9 percent to £0.8528 per euro.