Asian Currencies Fall Most Since November as Europe Risks Mount

Asian currencies had the biggest weekly drop since November as concern Europe’s debt crisis will worsen spurred demand for dollars amid signs the U.S. and Chinese economies are losing momentum.

The Bloomberg-JPMorgan Asia Dollar Index fell 0.9 percent this week as global funds pulled about $1.9 billion from stocks in South Korea and Taiwan. The won and Malaysia’s ringgit saw their biggest losses since September, while India’s rupee sank to an all-time low. Greece’s credit rating was cut by Fitch Ratings May 17 on concern the country will leave the euro, while Moody’s Investors Service downgraded 16 Spanish banks and 26 Italian lenders this week.

The won fell 2.2 percent from its May 11 close to 1,172.73 per dollar in Seoul, according to data compiled by Bloomberg. The ringgit dropped 2 percent to 3.1350 in Kuala Lumpur. The rupee slid 1.5 percent to 54.4250 and Indonesia’s rupiah weakened 1.2 percent to 9,356.

“Investors are taking money out from riskier assets given the lingering concerns about Europe’s debt problem and the economic recovery outlook,” said Shigehisa Shiroki, chief trader on the Asian and emerging-markets team in Tokyo at Mizuho Corporate Bank. “It’s a double-whammy for Asian currencies as many countries depend on exports for growth.”

U.S. reports May 17 showed an unexpected contraction in manufacturing and consumer confidence was the lowest in almost four months. Home prices in China fell in a record 46 of 70 cities tracked by the government in April from a year earlier, according to data released yesterday. Greece is holding an election on June 17 after political leaders, split over austerity measures needed to secure a European Union-led bailout, failed to form a coalition in the wake of a May 6 poll.

Stock Losses

The MSCI Asia-Pacific Index of stocks erased all of its 2012 gain this week as about $2 trillion of global stock market value was erased. Policy makers in some parts of the region indicated they are prepared to intervene to support their currencies.

South Korea is monitoring capital flows and will take steps to stabilize markets if needed, according to a joint statement from the finance ministry, central bank and the financial-markets regulator May 17.

“There’s little willingness in the market to sell the dollar as Greek issues dominate,” said Kim Seong Soo, a Seoul-based currency trader with Kyongnam Bank. There was speculation in the market that the government intervened to stem the won’s losses, but it wasn’t enough to reverse the weakening trend, Kim said.

Intervention Risk

The Reserve Bank of India and Bank Indonesia have said they will buy their currencies to counter depreciation, while Bank Negara Malaysia said the country can weather any setbacks arising from Europe’s debt crisis.

“Strong market forces in favor of the dollar have created panic,” said J. Moses Harding, executive vice president at IndusInd Bank Ltd. in Mumbai. “The Reserve Bank of India does not have enough ammunition to fight against the tsunami-like ferocious headwinds the rupee is facing.”

The yuan weakened 0.28 percent this week to 6.3284 per dollar in Shanghai and touched 6.3307, the weakest level since March 15, according to China Foreign Exchange Trade System. The People’s Bank of China lowered its reference rate 0.41 percent to 6.3209, the biggest weekly decline since August 2010.

China Slowdown

The central bank in Asia’s biggest economy cut lenders’ reserve requirements effective yesterday for the third time in six months to support the economy, which expanded in the first quarter at the slowest pace since mid-2009. Goldman Sachs Group Inc. lowered its forecast for second-quarter growth to 7.9 percent from 8.5 percent, according to a research note published yesterday. The bank reduced its 2012 projection to 8.1 percent from 8.6 percent.

Thailand’s baht dropped 0.5 percent this week to 31.33 per dollar in Bangkok. A government report on May 21 may show the economy shrank 0.9 percent in the first quarter, according to the median estimate in a Bloomberg News survey of economists. Gross domestic product slumped 9 percent in the final three months of 2011 as the worst floods in almost 70 years damaged factories and crops.

Elsewhere, the Philippine peso depreciated 1.6 percent to 43.247 against the greenback, Taiwan’s dollar lost 0.7 percent to NT$29.63 and Vietnam’s dong dropped 0.1 percent to 20,848.

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