Asian currencies had their worst weekly loss in six months as signs of a deeper economic slowdown in China and the Federal Reserve’s support for tapering asset purchases weighed on emerging markets.
South Korea’s won led the declines as a gauge of manufacturing in China, the nation’s biggest export market, fell to a seven-month low. Thailand’s baht had its steepest five-day drop of 2014 as anti-government protests turned deadly, while violence in Ukraine also damped sentiment. Fed policy makers backed further stimulus cuts at their January review, the minutes of the meeting showed, a program that drove capital into developing countries.
“Investors remain cautious and are concerned about downside risks coming from a slowdown in China and political instability in Thailand, Ukraine, Turkey and Argentina,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “There are potential outflows to Treasuries as the Fed tapering is likely to push their yields up as well.”
The Bloomberg JPMorgan-Asia Dollar Index, which tracks the region’s 10 most-active currencies, declined 0.6 percent last week, the biggest decline since Aug. 23, to 115.33 in Singapore. The won dropped 0.8 percent, the most in a month, to 1,072.09 per dollar in Seoul, data compiled by Bloomberg shows.
A preliminary Purchasing Managers’ Index of factory output in China fell to 48.3 this month from 49.5 in January, HSBC Holdings Plc and Markit Economics reported Feb. 20, below the median estimate in a Bloomberg survey of 49.5. A reading lower than 50 indicates contraction.
The yuan headed for its biggest weekly slide since September 2011 in offshore trading, while the onshore spot rate also fell following the numbers.
The currency dropped 1.2 percent from Feb. 14 to 6.1082 per dollar in the offshore market in Hong Kong, according to data compiled by Bloomberg. The onshore rate declined 0.4 percent in Shanghai to 6.0914, the biggest five-day loss since June 2012.
“The PMI is helping to scale back renminbi appreciation expectations,” said Paul Mackel, Hong Kong-based head of Asian currency research at HSBC. “I’d expect offshore yuan profit-taking to extend.”
On the U.S. front, several Fed officials backed a continued decrease in bond purchases unless there is an “appreciable change” in the U.S. economic outlook, according to the minutes released Feb. 19. The central bank has pared the debt-buying program by $20 billion this year to $65 billion a month and plans to make further cuts at future meetings.
Some $21 billion was pulled from emerging markets in the first six weeks of 2014, EPFR Global data show.
Bank of Korea Governor Kim Choong Soo said this week the nation’s economy will show stability even as the U.S. tapers stimulus and that its monetary policy is “very accommodative.”
In Thailand, a violent clash between police and protesters on Feb. 18 left five people dead and injured at least 69. The demonstrators are ramping up efforts to oust Prime Minister Yingluck Shinawatra on claims her government is corrupt. Data on Feb. 17 showed the economy grew 0.6 percent last quarter from a year earlier, the slowest pace in almost two years.
“The unrest in Thailand will keep a downward bias on the baht,” said Pareena Phuangsiri, an analyst at Kasikornbank Pcl in Bangkok. “Global factors such as the Fed’s minutes and China data also impacted the baht and Asian currencies.”
The baht dropped 0.7 percent this week to 32.555 per dollar in Bangkok, taking its loss for the past three months to 2.4 percent, the third-worst performance in Asia after the Malaysian ringgit and Taiwan dollar.
Elsewhere in the region, India’s rupee weakened 0.3 percent during the five days to 62.13 versus the greenback in Mumbai. The ringgit climbed 0.3 percent for a third weekly advance to 3.2954 and Indonesia’s rupiah strengthened 0.7 percent to 11,743. The Philippine peso gained 0.4 percent to 44.555. Taiwan’s dollar fell 0.2 percent to NT$30.395 and the Vietnamese dong was steady at 21,105.