Korea's Won Leads Slide in Asian Currencies on Signs Recovery Faltering

Asian currencies fell, led by South Korea’s won, on concern the region’s recovery is losing traction after Japan unveiled weaker-than-estimated data and a gauge for the outlook on China’s economy was revised lower.

The Bloomberg-JPMorgan Asia Dollar Index also slid as the International Monetary Fund said a revaluation of the yuan won’t happen “very rapidly,” damping the outlook for exports to China. Data released today showed Japan’s unemployment rate unexpectedly rose last month, while industrial output climbed less than forecast and household spending fell.

“Much of the data this week will not erase concerns about a double dip in global economic activity, and the Japanese data this morning will only exacerbate worries,” Dariusz Kowalczyk, a senior economist and strategist at Credit Agricole SA in Hong Kong, wrote in a research note.

The won declined 1.3 percent to 1,217.30 per dollar as of 2:10 p.m. in Seoul, according to data compiled by Bloomberg. India’s rupee dropped 0.6 percent to 46.46, while the ringgit slid 0.4 percent to 3.2365.

South Korea’s currency has lost 7.6 percent this quarter, the worst performance in the region, followed by India’s rupee and the Philippine peso. Malaysia’s ringgit, which has gained 0.8 percent this quarter, outperformed its peers.

The MSCI Asia-Pacific Index of regional shares slid 1 percent today. China fixed the yuan’s reference rate at 6.7901, 0.02 percent weaker than yesterday’s record-high 6.7890.

Japan, China Reports

International Monetary Fund Managing Director Dominique Strauss-Kahn said in Washington yesterday that a revaluation of China’s currency won’t happen quickly or fix all of the global economy’s imbalances.

The Conference Board, a U.S.-based research group, today corrected its April gauge for the outlook of China’s economy, saying its leading index for the country rose the least since November, rather than registering the biggest gain in 14 months.

Japan’s unemployment rate reached 5.2 percent in May, the third straight monthly increase and the highest level since December, the statistics bureau said. Household spending retreated 0.7 percent from May 2009, the office also said. Factory output dropped 0.1 percent from April, the Trade Ministry said, compared with the median forecast in a Bloomberg News survey of 24 economists for production to have held steady.

South Korea’s won slid as traders pared bets for an appreciation in the yuan, a move that would boost the purchasing power of consumers in China, the world’s third-biggest economy.

‘Party Is Over’

“Expectations of a yuan increase have weakened a lot,” said Ha Jun Woo, a foreign-exchange dealer at Daegu Bank in Seoul. “The yuan’s moves have been incremental. I’m wondering if the party is over now.”

South Korea’s current-account surplus was $3.83 billion in May, jumping from a revised $1.42 billion in April, the central bank said in Seoul today. The surplus for last month was the biggest since November.

India’s rupee weakened for the first time in three days as the nation’s benchmark Sensitive Index of shares dropped 0.5 percent.

“The rupee is tracking the weakness in stocks because the latest economic reports from Asia aren’t particularly encouraging,” said Krishnamurthy Harihar, a Mumbai-based treasurer at the Indian unit of South Africa’s FirstRand Ltd. “In the medium term, we should see the rupee gradually appreciating, driven by fundamentals.”

China Pact

Taiwan’s dollar advanced, bucking the trend among regional currencies, on optimism a trade pact being signed with China today will spur exports and encourage overseas investors to pump more money into the island’s assets.

The Economic Cooperation Framework Agreement will be signed in the Chinese city of Chongqing and reflects strengthening ties between Taiwan and the mainland.

“More foreign banks and funds are selling U.S. dollars to buy government bonds, or maybe some stocks,” said Henry Lin, a Taipei-based foreign-exchange trader at Taiwan Shin Kong Commercial Bank. “Most of the money is parking in government bonds to arbitrage the price of the Taiwan dollar.”

The currency may reverse or pare gains later in the day as the central bank intervenes to support exporters, Lin said. Taiwan’s dollar climbed 0.3 percent to NT$32.080 against its U.S. counterpart.

Elsewhere, the currencies of Thailand, the Philippines and Indonesia all slid 0.1 percent. The baht was at 32.40 per dollar, the peso at 46.435 and the rupiah at 9,035.

To contact the reporter on this story: Khalid Qayum in Singapore at kqayum@bloomberg.net;

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