Asian currencies dropped this week, led by Malaysia’s ringgit and South Korea’s won, on speculation the Federal Reserve won’t extend monetary easing and regional central banks will intervene to curb appreciation.
Policy makers should be ready to vary the pace of $85 billion a month of debt buying, which has boosted the supply of dollars and spurred inflows to emerging markets, according to minutes of the Federal Open Market Committee’s Jan. 29-30 meeting released Feb. 20. The Dollar Index rallied 0.8 percent that day and 0.5 percent the next. Central bank officials in South Korea and the Philippines said this week they would act to curb currency swings.
“The Fed’s minutes had quite a big impact and the dollar has been firmer broadly,” said Koji Fukaya, president of currency research and consulting company Office Fukaya in Tokyo. “There remains speculation some of the regional central banks will intervene to halt appreciation in their currencies,” said the former chief foreign-exchange strategist at Credit Suisse Group AG.
The ringgit dropped 0.8 percent this week to 3.1015 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. The won fell 0.6 percent to 1,084.68, Indonesia’s rupiah declined 0.4 percent to 9,709 and the Philippine peso weakened 0.2 percent to 40.685. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-active Asian currencies excluding the yen, dropped 0.1 percent.
The Malaysian currency had its first weekly decline in three after a composite index based on a survey of purchasing managers in services and manufacturing in the 17-nation euro area decreased to 47.3 this month from 48.6 in January, data from London-based Markit Economics showed Feb. 21. That’s less than a reading of 49 predicted by economists in a Bloomberg survey. Fifty is the dividing line between expansion and contraction.
“The weak economic data from Europe and concern that the U.S. will cut its bond purchases are reducing demand for riskier assets,” said Suresh Kumar Ramanathan, a currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. “The Malaysian currency should continue to trade within the 3.0850 to 3.1150 range in the short term.”
The won also completed its first weekly drop in three after South Korean authorities indicated they will intervene to curb gains that hurt the nation’s exports.
Japanese policies that have weakened the yen by 12 percent against the dollar in the past three months are threatening the competitiveness of Korean companies such as Samsung Electronics Co. The new President Park Geun Hye may adjust currency trading rules if needed, her transition team said in a policy report released Feb. 21.
Authorities “want to show investors and speculators that it’s not a one-way bet,” said Roy Teo, a currency strategist at ABN Amro Bank NV in Singapore. Intervention or measures to reduce volatility are “quite likely,” he said.
The Philippine peso had its biggest weekly drop this month. Central bank Governor Amando Tetangco said in a mobile-phone message on Feb. 19 that authorities will employ “appropriate macroprudential measures to address any financial stability pressures that could result from further surges in capital inflows.” The peso has gained 4.9 percent in the past year, the best performer among Asia’s 11 most-traded currencies.
Elsewhere in the region, Taiwan’s dollar strengthened 0.3 percent this week to NT$29.658 against the greenback, according to prices from Taipei Forex Inc. China’s yuan lost 0.04 percent to 6.2351, Vietnam’s dong dropped 0.2 percent to 20,885, Thailand’s baht was steady at 29.85 and India’s rupee rose 0.1 percent to 54.1850.