Asian currencies tumbled the most in 21 months this week as Federal Reserve Chairman Ben S. Bernanke said the central bank will probably taper stimulus that has driven fund flows to emerging markets.
India’s rupee touched a record low and Malaysia’s ringgit had its worst week in three years after Bernanke said on June 19 that $85 billion a month of debt purchases, also known as quantitative easing, may be trimmed this year and ended in 2014 if the U.S. economy performs in line with Fed estimates.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies, dropped 1.1 percent since June 14 to 115.51 in Hong Kong, the biggest decline since Sept. 23, 2011. The rupee retreated 2.9 percent to 59.2675 per dollar, the ringgit fell 2.7 percent to 3.2 and the Philippine peso lost 2.1 percent to 43.735.
“The prospect of less quantitative easing has caused outflows and a selloff in Asian assets,” said Tobby Lin, a fixed-income trader at Yuanta Securities Co. in Taipei. “The countries that had experienced the most inflows, like South Korea and Southeast Asian nations, are being hit the most.”
Global investors pulled a combined $2.1 billion from Taiwanese, South Korean, Thai and Indonesian stocks in the first four days of this week, exchange data show.
More than $19 billion was withdrawn from funds investing in developing-nation assets in the three weeks to June 12, the most since 2011, according to data from EPFR Global. The Dollar Index, which tracks the greenback against six major counterparts, rose 1.6 percent for the week, while the MSCI Asia Pacific Index of shares fell 2.5 percent.
Losses in regional currencies have forced central banks to defend their exchange rates. The Bank of Thailand will step in to curb excessive volatility in the baht if needed, Deputy Governor Pongpen Ruengvirayudh said June 20 in Bangkok. Finance Minister Kittiratt Na-Ranong said the same day he wants the Bank of Thailand to “manage the foreign-exchange rate.”
Policy makers are watching the rupee and “will take steps if necessary,” Reserve Bank of India Deputy Governor H.R. Khan said yesterday. The central bank probably sold dollars around the unprecedented 59.98 level to prevent the rupee from sliding past 60, three traders said June 20, asking not to be named as the information isn’t public.
A report released June 20 suggested Chinese manufacturing shrank more than expected this month. The preliminary reading of 48.3 for a Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics compares with the 49.1 median forecast in a Bloomberg survey and the final reading of 49.2 in May. Fifty is the dividing line between expansion and contraction.
“The Fed’s stimulus outlook dominates the market and is weighing on regional currencies and assets,” said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc. in Tokyo. “Data indicating a China slowdown is adding to the negative sentiment.”
Emerging-market currencies will remain under pressure until year-end as concern over Fed tapering, which will probably start in December, will continue to weigh on markets, Morgan Stanley said in a research note yesterday.
Elsewhere in Asia, South Korea’s won dropped 2.4 percent this week to 1,154.15 per dollar. Thailand’s baht fell 1.6 percent to 31.07, Indonesia’s rupiah declined 0.6 percent to 9,930 and Taiwan’s dollar weakened 1 percent to NT$30.280. China’s yuan was down 0.06 percent at 6.1342, while the Vietnamese dong slipped 0.2 percent to 21,036.