Asian Currencies Fall; Yuan Drops After Fed Refrains From Easing

Asian currencies fell after U.S. policy makers refrained from additional monetary easing, a move that would have made more money available for investing in higher-yielding emerging-market assets.

The Bloomberg JPMorgan Asia Dollar Index (ADXY) lost 0.2 percent as the yuan headed for its biggest three-day decline since November. The Federal Reserve raised its assessment of the world’s largest economy yesterday as a government report showed U.S. retail sales increased by the most in five months. The Dollar Index (DXY) traded on ICE Futures in New York, which compares the currency to those of six trading partners, extended gains to an eight-week high.

“The dollar got support as expectations of further quantitative easing are receding,” said Kozo Hasegawa, a trader at Sumitomo Mitsui Banking Corp. in Bangkok. “On the other hand, sound data out of the U.S. and the better economic outlook means that the trend of fund inflows to Asia will remain intact. Sandwiched by those reasons, the currencies may remain in a tight range.”

The yuan declined 0.15 percent to 6.3367 per dollar as of 3:50 p.m. in Shanghai, Indonesia’s rupiah dropped 0.3 percent to 9,198, while South Korea’s won declined 0.4 percent to 1,126.25. The Malaysian ringgit weakened 0.4 percent to 3.0490 per dollar, while the Thai baht lost 0.3 percent to 30.74.

U.S. retail sales rose 1.1 percent in February, following a 0.6 percent increase in January. “The unemployment rate has declined notably in recent months but remains elevated,” the Fed said in a statement after a meeting in Washington.

China Slowing

The People’s Bank of China set the yuan’s fixing 0.1 percent weaker at 6.3328 per dollar today. The world’s second- largest economy had the biggest trade deficit in at least 22 years last month and the smallest increase in January-February factory output since 2009, government data showed last week.

“There’s an assessment the weak trade numbers reported over the weekend will prompt policy makers to limit yuan appreciation,” said Brian Jackson, a currency strategist at Royal Bank of Canada in Hong Kong. “I don’t expect the yuan to weaken significantly on a sustained basis. We expect exports to pick up again.”

The rupiah dropped on concern government plans to raise subsidized fuel prices will stoke inflation and erode returns on the nation’s debt.

Inflation Expectation

Overseas funds pared their holdings of local bonds this month through March 9 by 1.1 trillion rupiah ($120 million) to 226 trillion rupiah, data from the finance ministry showed. The government has proposed adjusting its inflation target in the revised 2012 state budget to 7 percent from 5.3 percent.

“Higher inflation expectation is a major concern for investors, which weighs on the bond markets,” said Apressyanti Senthaury, a Jakarta-based treasury analyst at PT Bank Negara Indonesia. “The rupiah is unlikely to weaken beyond 9,200 per dollar. It’s difficult for Bank Indonesia to maintain the currency at a stronger level than that considering global factors like the stronger dollar.”

One-month implied volatility in the rupiah, which measures exchange-rate swings used to price options, fell to a one-month low today at 8.25 percent. The central bank will continue to observe and intervene in the foreign-exchange and secondary bond markets to stabilize the currency, according to a note posted on its website last week.

The won fell to a one-week low after Korea’s unemployment rate unexpectedly rose to an 11-month high of 3.7 percent in February, the government said today. Economists predicted no change from January’s 3.2 percent level, according to a Bloomberg survey. One-month implied volatility in the won was little changed at 8.76 percent.

Elsewhere, the Philippine peso slid 0.5 percent to 42.88 per dollar and India’s rupee traded at 49.965 versus 49.98 yesterday. Taiwan’s dollar weakened 0.1 percent to NT$29.549.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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