Won Leads Decline in Asian Currencies After Surprise Rate Cut

Asian currencies fell, led by South Korea’s won, as the Bank of Korea unexpectedly cut borrowing costs and a Federal Reserve report disappointed investors looking for a stronger signal for stimulus.

The BOK lowered the seven-day repurchase rate by 25 basis points to 3 percent, the first cut since February 2009. The Bloomberg-JPMorgan Asia Dollar Index snapped a three-day advance and the MSCI Asia-Pacific Index of shares fell for a sixth day after minutes of the Fed’s June meeting released yesterday said the central bank will probably need to take more action to boost the labor market and meet its inflation target.

“The less dovish sounding Fed has helped bring in some dollar support,” said Sacha Tihanyi, a strategist at Scotiabank in Hong Kong, a unit of Bank of Nova Scotia. The market awaits China’s growth data and “the risk is for underperformance, at least the nervousness is there,” he said.

The won weakened 0.9 percent to 1,151.38 per dollar as of the 3 p.m. close in Seoul, according to data compiled by Bloomberg. Indonesia’s rupiah fell 0.7 percent to 9,488, Malaysia’s ringgit slipped 0.4 percent to 3.1898 and Thailand’s baht dropped 0.4 percent to 31.81. The Asia Dollar Index declined 0.3 percent, with its 60-day historical volatility holding rising to 3.66 percent from 3.61 percent yesterday.

China’s economy probably expanded 7.7 percent in the second quarter from a year earlier, easing from an 8.1 percent pace in the first three months this year, according to a Bloomberg survey. Inbound shipments into Asia’s largest economy increased 6.3 percent in June from a year earlier, compared with a forecast for an 11 percent gain in a Bloomberg survey.

Bank Indonesia held its benchmark interest rate at 5.75 percent in Jakarta today, as predicted by all 20 economists surveyed by Bloomberg.

Korean Rate Cut

Only two of 16 economists surveyed by Bloomberg News predicted the BOK rate cut, while the rest forecast no change.

“This cut is unlikely to be the last and a second is likely to come sooner rather than later,” Patrick Perret-Green, head of Asian currency strategy at Citigroup Inc. in Singapore, wrote in a note today. “Against a softening global background, and the particular deceleration of China, it was time for the BOK to take a more macro-prudential approach.”

South Korea’s economy may expand 3.3 percent this year, less than a December estimate of 3.7 percent, the Finance Ministry said June 28. The Bank of Korea is scheduled to revise its own 2012 growth forecast tomorrow, after reducing it to 3.5 percent in April from 3.7 percent.

China Concern

China’s yuan fell 0.03 percent to 6.3708 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The People’s Bank of China set the currency’s fixing 0.01 percent lower at 6.3215. Based on the forecasted 7.7 percent pace, growth in the world’s second-largest economy will be the slowest in three years. Exports increased 11.3 percent in June from a year earlier, compared with 15.3 percent in May, official data show.

“Market participants are concerned about China’s condition,” said Shigehisa Shiroki, chief trader on the Asian and emerging-markets team at Mizuho Corporate Bank Ltd. in Tokyo. “External demand is weakening globally and exports may remain sluggish.”

Elsewhere, the Philippine peso weakened 0.4 percent to 42.04 per dollar. India’s rupee dropped 0.3 percent to 55.8125, Taiwan’s dollar fell 0.1 percent to NT$29.999 and the Vietnamese dong advanced 0.1 percent to 20,865.

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