Rupee Leads Weekly Drop in Asia Currencies on Fed, Slowing China

Asian currencies fell this week, led by India’s rupee, as speculation the Federal Reserve will taper stimulus and signs Chinese growth is slowing damped demand for emerging-market assets.

Two manufacturing gauges in Asia’s largest economy fell in June, reports showed this week, while data indicating an improvement in the U.S. labor market bolstered the case for the Fed to begin paring debt purchases that have spurred fund flows to Asia. Overseas investors pulled $1.1 billion from Taiwanese, South Korean and Indonesian stocks this week, exchange data show. The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, climbed 0.7 percent since June 28.

“For Asian currencies, it’s been a story of dollar strength and continued pressure of outflows this week,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “The U.S. data this week was quite good and will probably support the case for the Fed to start tapering soon. Asian currencies still have a bit more weakness to go.”

The Bloomberg-JPMorgan Asia Dollar Index (ADXY), which tracks the region’s 10 most-active currencies, declined 0.2 percent this week to 115.45 as of 4:48 p.m. in Hong Kong, according to data compiled by Bloomberg. The rupee fell 1.6 percent to 60.37 per dollar, and was poised for its ninth straight weekly loss. Malaysia’s ringgit retreated 0.9 percent to 3.1885 and the Philippine peso weakened 0.5 percent to 43.405.

U.S. Jobs

Fed Chairman Ben S. Bernanke first indicated on May 22 that asset purchases could be reduced if there was a sustained improvement in the jobs market in the world’s largest economy.

The U.S. Labor Department may report that companies added 165,000 workers last month, compared with 175,000 in May, according to the median estimate of economists surveyed by Bloomberg News. Jobless claims decreased to 343,000 in the week ended June 28 from a revised 348,000 in the prior period, data on July 3 showed.

“The dollar is strong globally as the likely improvement in U.S. employment is adding to concerns about the Fed’s early stimulus exit,” said Son Eun Jeong, an analyst at Woori Futures Co. in Seoul.

The rupee headed for its longest weekly losing streak in a year after foreign funds cut holdings of local-currency Indian debt by $562 million in the first three days of this week, following withdrawals of $5.4 billion in June, exchange data show. Goldman Sachs Group Inc. cut its rupee forecast, saying India may find it tough to lure capital to offset its record current-account deficit.

Goldman sees the rupee at 60 per dollar in 12 months, compared with an earlier prediction of 56. It will depreciate to 62 by end-2014, the lender forecasts.

Malaysian Stocks

“The worsening funding environment for emerging markets could continue to put currencies which have high current-account deficits, such as the rupee, under pressure,” Tushar Poddar, a Goldman economist in Mumbai, wrote in a report released yesterday. “Capital outflows from debt have had a large impact on the rupee.”

Malaysia’s stock exchange released figures this week showing foreign funds sold a net 3.5 billion ringgit ($1.1 billion) of local shares in June.

“The latest stock exchange data show that in June there was net selling of Malaysian equities by foreigners for the first time this year, so there’s a bit of pressure there,” Societe Generale’s Chong said.

Elsewhere in Asia, Thailand’s baht weakened 0.3 percent to 31.14 per dollar this week. Indonesia’s rupiah fell 0.2 percent to 9,944 and Vietnam’s dong dropped 0.2 percent to 21,238. Taiwan’s dollar declined 0.3 percent to 30.218, South Korea’s won was little changed at 1,142.50, while China’s yuan rose 0.1 percent to 6.1326.

To contact the reporter on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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