Asian Currencies Fall, Led by 2-Day Slide in Korean Won, as Recovery Cools

Asian currencies fell, led by the biggest two-day drop in the South Korean won in six weeks, as reports raised concern the global recovery is slowing.

The MSCI Asia-Pacific Index of stocks followed local currencies lower after Chinese data issued today showed growth in factory output and retail sales slowed in July, a day after a another report pointed to cooling demand for exports. Singapore signaled yesterday the possibility of a “technical recession” in the second half of the year, while the Federal Reserve said it would keep interest rates low for an extended period to shore up its flagging economy.

“The major concern now is of a global slowdown, with the Chinese numbers heading south and Singapore talking about negative numbers,” said Philip Wee, a Singapore-based senior currency economist at DBS Group Holdings Ltd. “While no one is expecting a double-dip recession, a slowdown seems much more real now.”

South Korea’s won dropped 1.2 percent to 1,182.50 per dollar as of the 3 p.m. close in Seoul, according to data compiled by Bloomberg, a two-day loss of 1.9 percent. The Philippine peso fell 0.7 percent to 45.22 and Malaysia’s ringgit declined 0.4 percent to 3.1715.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-actively traded currencies, slipped for a third day, its longest losing streak since June. The MSCI Index dropped 1.6 percent, adding to yesterday’s 1 percent loss.

‘Prolonged Slowdown’

The Fed left the target overnight lending rate between banks in a range of zero to 0.25 percent, where it’s been since December 2008, and said expansion in output and employment has “slowed in recent months.”

Malaysia’s ringgit fell for a second day on concern that exports and demand for emerging-market assets will ease as the recovery loses momentum. The government reported yesterday that factory production increased 9.4 percent in June, the least in four months.

“The U.S. is showing signs of a prolonged slowdown and this has caused a rush for safety,” said Nik M. Khairul, a treasury dealer at Asian Finance Bank Bhd. in Kuala Lumpur. “If export destinations like the U.S. and China are cooling off, there’s a possibility the ringgit will need to adjust along the way.”

The dollar strengthened against 14 of the world’s 16 major currencies and the yen climbed for a second day versus the euro as investors sought safer assets than those in emerging markets.

Thailand’s baht bucked the regional trend and rose for an eighth day, its longest winning streak since December 2008, amid government optimism over growth and exports this year.

Thai Inflows

Overseas shipments will advance at least 20 percent, the government said this week, one month after having boosted the growth target to 19 percent. The baht climbed to its strongest level in more than two years on Aug. 9 after Finance Minister Korn Chatikavanij acknowledged the currency’s potential to appreciate, citing the outlook for exports.

Investors based abroad bought more Thai equities than they sold for a 12th straight day yesterday, the longest run of net purchases since April.

The baht climbed 0.1 percent to 31.92, taking gains to 1.1 percent so far this month, the second-best performance in Asia, according to data compiled by Bloomberg.

“The trend is for the baht to strengthen on strong exports and the economy, as well as fund inflows,” said Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp.

Korea Rate Decision

Korea’s won dropped after a government report showed the unemployment rate rose to the highest level since April, damping speculation policy makers will tomorrow add to last month’s interest-rate increase. Eight of 15 economists surveyed by Bloomberg predict the Bank of Korea will leave borrowing costs at 2.25 percent, while the rest predict a 25 basis-point rise.

“There’s a possibility the central bank may not move rates,” said Ha Joon Woo, a currency dealer at Daegu Bank in Seoul. “We’re also seeing less aggressive play after the Fed said it will keep rates close to zero.”

Yuan forwards fell 0.1 percent after the retail sales and industrial production data. The 12-month non-deliverable contracts were at 6.6707 per dollar, from 6.6650 yesterday, indicating bets for an appreciation of 1.5 percent from the spot rate of 6.7738 in a year.

Industrial output rose 13.4 percent in July from a year earlier, the statistics bureau said, the least in 11 months. Retail sales slowed to 17.9 percent from 18.3 percent.

“The People’s Bank of China is encouraging two-way flexibility to ease appreciation expectations,” said Zhao Qingming, a senior analyst in Beijing at China Construction Bank Corp., the country’s second-largest lender.

Elsewhere, the Indian rupee weakened 0.3 percent to 46.5362 per dollar, Indonesia’s rupiah fell 0.2 percent to 8,973, and Singapore’s dollar declined 0.3 percent to S$1.3588. Taiwan’s currency slipped 0.1 percent to NT$31.88.

To contact the reporter on this story: Patricia Lui at plui4@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.

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