Rupee Leads Weekly Advance in Asian Currencies on Fed

Indian Rupee Banknotes
A fruit vendor counts Indian rupee banknotes of various denominations at his stall in Mumbai. Photographer: Dhiraj Singh/Bloomberg

Asian currencies rose this week, led by India’s rupee, on speculation the Federal Reserve will delay reducing stimulus amid a U.S. political impasse.

The Bloomberg-JPMorgan Asia Dollar Index gained 0.5 percent in the five days through yesterday as the U.S. government started a partial shutdown. Democrats, including President Barack Obama, say Republicans must end the standoff and raise the debt ceiling as a precondition to talks on broader budget disputes. The Fed will meet Oct. 30-31 after a surprise decision on Sept. 18 to maintain $85 billion a month of bond purchases.

“Asian currencies are riding on the tailcoats of a weaker dollar,” said Vishnu Varathan, an economist at Mizuho Bank Ltd. in Singapore. “Increasingly, the chances of an October taper are almost extinguished, but that will take the backseat the moment we get too close to a debt-ceiling crisis.”

India’s rupee climbed 1.7 percent this week to 61.44 per dollar in Mumbai, according to data compiled by Bloomberg. The Malaysian ringgit appreciated 1.4 percent to 3.1827, the Philippine peso gained 0.7 percent to 43.05, while Taiwan’s dollar advanced 0.5 percent to NT$29.502.

A one-week partial shutdown of the U.S. government would probably shave 0.1 percentage point from economic growth, according to the median estimate of economists surveyed by Bloomberg, with the costs accelerating if the closure persists. The effect of a failure to raise the $16.7 trillion debt ceiling would be even bigger. The government will run out of borrowing authority Oct. 17, according to the Treasury Department, leaving only cash to pay the bills.

Indian Rupee

The rupee touched 61.2637 yesterday, the strongest level since Aug. 13, after better-than-forecast current-account data boosted optimism that the annual gap will narrow from a record.

The deficit was $21.8 billion in April through June, compared with $18.1 billion in the previous quarter, the Reserve Bank of India said in a statement in Mumbai on Sept. 30. The median estimate in a Bloomberg survey was for a $23 billion gap. The gap will narrow to about $59 billion in the year through March 2014 from an unprecedented $87.8 billion the prior period, Morgan Stanley predicts.

“Expectations of improvement in the current account and funding are materially important for the rupee,” analysts at Morgan Stanley, including Hong Kong-based Geoffrey Kendrick, wrote in a research report on Oct. 3. “We are tactically constructive on the rupee.”

Taiwan’s dollar touched NT$29.29 yesterday, the strongest level since Jan. 28, as Chinese data signaled an economic recovery in the island’s biggest export market is gathering pace.

Philippine Upgrade

China’s non-manufacturing purchasing manager’s index climbed to a six-month high in September, according to a report released Oct. 3, after a separate gauge showed manufacturing expanded last month. The Taiex index closed at the highest level since May on Oct. 3 as global funds pumped $607 million into local equities, exchange data show.

“The Taiwan dollar, like Korea, is very well-leveraged to what’s happening in China,” said Patrick Bennett, Hong Kong-based strategist at Canadian Imperial Bank of Commerce. “China’s non-manufacturing PMI that was out this week was stronger than previously, and we think services are increasingly important for China.”

The peso completed a weekly gain after strengthening the most in two weeks on Oct. 3 as the Philippines won a debt-rating upgrade from Moody’s Investors Service. That completed the nation’s ascent to investment rank after Standard & Poor’s and Fitch Ratings boosted their assessments in May and March.

Elsewhere in Asia, South Korea’s won advanced 0.3 percent this week to 1,070.43 per dollar and Indonesia’s rupiah gained 0.1 percent to 11,523. Thailand’s baht rose 0.1 percent to 31.303 and Vietnam’s dong was little changed at 21,115. Chinese financial markets are shut Oct. 1-7 for public holidays.

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