Asian currencies advanced, snapping a two-week slump, on speculation the Federal Reserve will hold off from paring asset purchases after U.S. first-quarter growth trailed an earlier estimate.
The world’s largest economy expanded 1.8 percent in the first three months, less than a prior assessment of 2.4 percent, official data showed June 26. Fed Bank of New York President William C. Dudley said on June 27 the monthly debt-buying program, which has boosted dollar supply, could be prolonged should growth miss forecasts. India’s rupee rebounded from a record low of 60.7650 per dollar reached June 26 while Vietnam devalued its currency for the first time since 2011.
The Bloomberg-JPMorgan Asia Dollar Index (PCOMP) of 10 regional currencies rose 0.4 percent this week to 115.79. The Philippine peso strengthened 1.2 percent since June 21 to 43.205 per dollar, the best weekly gain in a year, according to data compiled by Bloomberg. Malaysia’s ringgit jumped 1.2 percent to 3.1648 and the South Korean won climbed 1.1 percent 1,142.06. Taiwan’s dollar appreciated 0.5 percent to NT$30.12.
“The reaction to the possible Fed tapering is a bit overdone,” said Rafael Algarra, executive vice president and head of financial markets at Security Bank Corp. in Manila. “We should see some interest in Philippine assets as investors realize that our economic fundamentals are intact.”
The Fed is buying $85 billion of bonds each month to keep borrowing costs low and spur growth. Fed Chairman Ben S. Bernanke said June 19 the central bank may taper the stimulus measures this year and end them in 2014 as long as the economy performs in line with its projections.
The peso pared a monthly drop as the Philippine Stock Exchange Index rallied almost 12 percent in the past three days. Bangko Sentral ng Pilipinas Governor Amando Tetangco said June 26 that Philippine economic fundamentals remain intact and the central bank’s low-interest-rate policy will continue.
The won advanced for a fourth day after South Korean Finance Minister Hyun Oh Seok said June 25 the government stands ready to stabilize financial markets and manage risks, including concerns about the unwinding of U.S. monetary stimulus. The ministry on June 27 raised its annual growth forecast to 2.7 percent from 2.3 percent, and the central bank reported the surplus in the current account increased to a record $8.64 billion in May.
“The authorities gave a signal this week that they may intervene,” said Han Sung Min, a currency trader at Busan Bank in Seoul. “South Korea’s current-account surplus seemed to be sound and the government suggested the nation’s economic fundamentals improved.”
The rupee surged 1.4 percent today, the most since September 2012, to 59.39 per dollar. That almost erased its losses for the week and pared a monthly drop to 4.7 percent. It sank 8.5 percent this quarter, the most since the three months through June 2012, on concern capital outflows will accelerate if the Fed cuts its debt purchases. Global funds pulled $571 million from Indian shares in the first three days of the week, taking outflows in June to $1.6 billion, exchange data show.
“We should see more voices from the U.S. downplaying global concerns and the rupee should see a more steady correction from here,” said Harihar Krishnamoorthy, Mumbai-based treasurer at the Indian unit of FirstRand Ltd. (FSR)
The Reserve Bank of India has sold dollars in the past two weeks to curb the rupee’s decline, traders said, asking not to be named as the information isn’t public.
China’s yuan strengthened the most in a month today after central bank governor Zhou Xiaochuan said the nation will maintain market stability, his first comment since a record cash crunch that spurred concern growth will slow. Borrowing costs for Chinese banks surged the most in at least six years in June as rating companies said the funding shortage threatens to swell bad loans.
“The panic is over as investors now have better clarity of the PBOC’s intention,” said Banny Lam, the Hong Kong-based co-head of research at Agricultural Bank of China International Securities Ltd., a unit of the nation’s third-largest lender. “The prospect of allowing more global usage of the yuan will support the exchange rate in the longer term.”
The yuan rose 0.19 percent to 6.1376 per dollar in Shanghai, the biggest one-day gain since May 27, according to China Foreign Exchange Trade System prices. The currency lost 0.06 percent this week and advanced 1.2 percent this quarter.
Vietnam’s central bank devalued its currency and cut the interest-rate cap on dollar deposits to help “improve” the balance of payments and boost foreign-exchange reserves.
The State Bank of Vietnam weakened its reference rate for the currency by 1 percent to 21,036 dong per dollar, effective today, according to a statement released on June 27. The currency, which is allowed to trade as much as 1 percent on either side of the fixing, fell 0.9 percent to 21,205 in Hanoi, according to data compiled by Bloomberg.
Elsewhere in Asia, Thailand’s baht rose 0.4 percent from a week earlier to 31 per dollar while Indonesia’s rupiah climbed 0.1 percent to 9,925. Singapore’s dollar rose 0.5 percent to S$1.2655 per dollar.