Asian Currencies Weaken Most Since September on Europe, China

Asian currencies had the biggest monthly loss since September as China’s economy slowed and a banking crisis in Spain curbed appetite for emerging-market assets.

The Bloomberg-JPMorgan Asia Dollar Index lost 2.7 percent since April 30 as global funds pulled $7.8 billion from South Korean, Taiwanese and Indonesian stocks, exchange data show. India’s rupee led losses, reaching a record low today as the government said the economy grew 5.3 percent last quarter, the smallest gain in nine years. Indonesia’s rupiah fell to the weakest level since November 2009 while China’s yuan and Malaysia’s ringgit both touched their lowest levels this year.

“The Europe problem is not going away anytime soon given the extent of demand for safe-haven assets,” said Roy Teo, a currency strategist in Singapore at ABN Amro Private Bank. “There’s added pressure for policy reaction given the market capitulation.”

The rupee fell 6.3 percent this month to 56.29 per dollar as of 2:18 p.m. in Mumbai and touched an all-time low of 56.3875 on May 24, according to data compiled by Bloomberg. The ringgit declined 4.6 percent to 3.1725 and the won fell 4.3 percent to 1,180.33. The rupiah fell 2.2 percent to 9,400 after reaching as low as 9.643 today.

Global stocks slumped yesterday after Italy failed to meet its maximum target at a debt sale, costs to protect Spanish government bonds with default swaps climbed to an all-time high and a Greek poll showed support for anti-austerity parties before an election on June 17.

Credit Downgrades

Foreign funds pulled $4.9 billion from emerging stock markets this month through May 23, according to EPFR Global. South Korea’s Kospi Index of shares fell for a third month as the euro sank to a two-year low.

“Won moves will follow the euro and stock-market declines on Europe’s debt crisis,” said Cho Hyun Seok, a Seoul-based currency trader at Standard Chartered Bank Korea. “We’re not seeing much selling of dollars by South Korean exporters even though it’s the end of the month.”

The Asia Dollar Index reached 113.78 today, the lowest level since September 2010. Its 60-day volatility rose to 2.86 percent from a two-year low of 2.68 percent on May 7. Fitch Ratings cut Greece’s creditworthiness earlier this month, while Moody’s Investors Service downgraded 16 Spanish banks and 26 Italian lenders.

The yuan lost 0.9 percent in May to 6.3690 per dollar in Shanghai, according to the China Foreign Exchange Trade System, its worst month since a peg to the dollar was scrapped in July 2005. The central bank fixed the daily reference rate at 6.3355 today, or 0.9 percent lower than on April 30.

Asian Intervention

An official report tomorrow may show growth in Chinese manufacturing slowed in May based on a survey of purchasing managers, according to a Bloomberg News survey. A similar gauge published by HSBC Holdings and Markit Economics on May 24 suggested it contracted for a seventh month.

Asian central banks are joining global emerging-market counterparts in intervening in currency markets to curb losses that threaten to stoke inflation. Bank Indonesia said on May 29 it will start offering dollar term deposits in two weeks to stabilize the rupiah while the Reserve Bank of India has sold a net $20.1 billion from its reserves in the seven months through March to arrest the rupee’s slide.

‘A Careful Balance’

Brazil auctioned currency swaps for four straight days last week to support the real after it fell to a three-year low, while South Korea, India and Russia are also acting to curb exchange-rate losses.

“Inflation is still an issue for a number of emerging-market countries,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. “At the same time, growth is an increasing concern for those countries vulnerable to the European debt crisis. Policy makers have to try and strike a very careful balance.”

Elsewhere, Thailand’s baht fell 3.5 percent this month to 31.86 per dollar. Taiwan’s dollar weakened 2.1 percent to NT$29.86, the Philippine peso dropped 2.9 percent to 43.495 and Vietnam’s dong was stable at 20,868 from a month ago.

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