Asian Currencies Retreat on U.S. Fiscal Cliff, Europe Slowdown

Asian currencies retreated from a 15-month high this week as U.S. lawmakers struggled to agree on budget revisions needed to avert $607 billion of automatic spending cuts and tax increases in the world’s biggest economy.

The Bloomberg-JPMorgan Asia Dollar Index, having gained in each of the last six months, halted its advance as Malaysia’s ringgit had its worst week since August. President Barack Obama said Dec. 5 that the global economy remains “soft” and the deadlock in Washington over taxes and spending, the so-called fiscal cliff, is holding the U.S. back from leading a strong recovery. European Central Bank President Mario Draghi said the euro-area’s economy will shrink more than predicted this year, while Germany’s central bank slashed its 2013 growth estimate.

“As we head into year-end, the discussions on the fiscal cliff become more intense, so that would probably prompt some flight to safety,” said Enrico Tanuwidjaja, an economist at Royal Bank of Scotland Group Plc in Singapore. “Inevitably, the external headwinds will hit Asian growth.”

The ringgit slid 0.6 percent this week to 3.0578 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. Indonesia’s rupiah fell 0.7 percent to 9,658, the Philippine peso declined 0.1 percent to 40.933 and India’s rupee fell 0.4 percent to 54.4750. The Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, fell 0.1 percent. It reached 118.26 on Nov. 30, the highest since September 2011.

Draghi Forecast

A few dozen Republicans joined a bipartisan push to break an impasse between Obama and House Speaker John Boehner over taxes for the highest-earning Americans. Draghi said the euro-area’s economy will shrink 0.5 percent this year, while the Bundesbank yesterday lowered its 2013 growth forecast for Germany to 0.4 percent from 1.6 percent predicted in June.

“Draghi’s words mean the recovery will be slower than previously expected, damping exports to Europe,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “More regional central banks are getting a bit more aggressive in intervening in the market to protect the recovery in exports.”

The Philippine central bank said on Dec. 3 capital controls may be part of steps to deal with inflows. South Korea’s market regulators are reviewing more curbs after tightening limits on currency forwards in November, Kim Seok Dong, chairman of the Financial Services Commission, said last week.

Rupee Optimism

The ringgit fell the most since the five days ended Aug. 31. A government report yesterday showed exports shrank 3.2 percent in October from a year earlier, following a 2.6 percent increase in September.

India’s rupee erased gains, after reaching a one-month high of 54.045 per dollar on Dec. 6. Lawmakers this week voted in favor of a government decision to open the retailing sector to the likes of Wal-Mart Stores Inc. and Tesco Plc.

“This currency continues to outperform on reform hopes,” Mitul Kotecha, head of global currency strategy at Credit Agricole CIB, said in a note to clients yesterday. “The passage was encouraging. Further gains in the rupee are seen over coming sessions.”

Elsewhere, China’s yuan was little changed this week at 6.2301 per dollar. Thailand’s baht and Taiwan’s dollar were steady at 30.68 and NT$29.125, respectively. South Korea’s won strengthened 0.1 percent to 1,081.55.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE