Won leads weekly drop in Asian currencies

Euro, US dollar and yen banknotes of various denominations are seen on display in Soka City, Japan. Asian currencies fell this week, led by South Korea’s won, as Chinese economic data missed estimates and a stronger US recovery added to speculation the Federal Reserve will cut its stimulus further.

Bloomberg/Seoul

The Bloomberg-JPMorgan Asia Dollar Index dropped for a second week as reports showed US December sales of existing homes capped the best year since 2006 and jobless claims held near a six-week low. Signs of a sustained economic pickup fuelled bets the Fed will continue to reduce bond-buying that has spurred fund flows to emerging markets. Manufacturing in China, Asia’s biggest economy, may have contracted this month, a preliminary reading showed on Januar 23.

“Weak data in China are strengthening demand for safety assets like the dollar,” said Hong Seok Chan, a currency analyst at Daishin Economy Research Institute in Seoul. “US tapering expectations offer a continued boost for the greenback.”

The won recorded its worst week in seven months, slumping 1.9% from January 17 to 1080.36 per dollar, data compiled by Bloomberg show. Malaysia’s ringgit slid 1.1%, its biggest weekly loss in a month, to 3.3334. India’s rupee dropped 1.8%, the most since August, to 62.6850 and Indonesia’s rupiah fell 0.7% to 12,180.

The Fed, which next meets January 28-29, downsized its monthly debt-buying programme in January by $10bn to $75bn. The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, rose 0.7% this month.

The won depreciated for a fifth day on Friday in its longest losing streak in 10 months after HSBC Holdings and Markit Economics reported a preliminary reading of 49.6 for China’s January Purchasing Managers’ Index, missing all 19 estimates in a Bloomberg survey of analysts. Official figures this week also showed economic growth slowed last quarter in China, Korea’s largest export market.

The won gained 23% against the yen in 2013, eroding the competitiveness of South Korean companies relative to their Japanese rivals, data compiled by Bloomberg show. Any further drop in the yen would cause widespread pain to local exporters, Bank of Korea Governor Kim Choong Soo said, adding that competitive devaluation of the won is “completely out of our consideration,” according to a Wall Street Journal report. The Bank of Korea may encourage the won’s “orderly depreciation” when the yen falls, Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, wrote in a research note released on Friday.

The ringgit touched its weakest level since August on January 23, prompting the central bank to intervene to pare its losses, according to two traders who asked not to be identified. The Fed will cut its stimulus by $10bn at each meeting this year before ending the programme before the end of 2014, according to a Bloomberg survey of economists.

“The ringgit’s weakness this week was due to the strong US data” and Fed meeting this month, said Wong Chee Seng, a currency strategist at AmBank Group in Kuala Lumpur. “There are further tapering expectations.”

Malaysian inflation accelerated in December to the fastest pace in two years, a report showed this week. The increase may prompt Bank Negara Malaysia to raise its policy rate by 50 basis points this year, Rahul Bajoria, a Singapore-based economist at Barclays, wrote in a January 22 research note.

The rupiah fell this week on speculation companies are boosting dollar purchases to fulfil month-end payments. Overseas funds bought $66mn more local stocks than they sold this week through Friday, exchange data show. “Confidence on the rupiah hasn’t returned despite inflows, as dollar demand from local corporates remains strong,” said Gundy Cahyadi, an economist at DBS Group Holdings in Singapore.

Elsewhere in Asia, the Philippine peso slipped 0.6% this week to 45.307 per dollar. Thailand’s baht weakened 0.1% to 32.84, while Taiwan’s dollar dropped 0.7% to NT$30.42. China’s yuan rose 0.02% to 6.0488, and Vietnam’s Dong climbed 0.02% to 21,085.