Asia Currencies in Weekly Drop as Fed Easing Curbs Spook Markets

Asian currencies fell this week, with India’s rupee touching a record low, on concern U.S. policy makers will pare bond purchases that have driven inflows to emerging markets.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies, dropped 0.2 percent to 116.73 and was 0.7 percent off a nine-month low reached June 11. Bets that the Federal Reserve will cut stimulus spurred record outflows of $14.4 billion from global bond funds in the week to June 12 and $8.5 billion from equities, a Citigroup Inc. report said citing EPFR data. The MSCI Asia Pacific Index of stocks rebounded today after posting its biggest loss in three weeks yesterday as the World Bank cut global growth estimates.

“Asian currencies and assets remain vulnerable as speculation of a reduction in quantitative easing is still lingering,” said Tsutomu Soma, manager of Rakuten Securities Inc.’s fixed-income business unit in Tokyo. “There’s a temporary improvement in risk sentiment today and probably a correction of quite a big sell-off, but the basic environment and trend for the region hasn’t changed.”

The Philippine peso led the week’s declines, retreating 1.3 percent to 42.805 per dollar in Manila, data compiled by Bloomberg show. The rupee fell 0.8 percent to 57.5300 and the South Korean won declined 0.8 percent to 1,126.25.

The Dollar Index, which tracks the greenback against six major counterparts, was down 1.1 percent for the week. The MSCI Asia Pacific Index climbed 1 percent after yesterday’s 2.2 percent drop.

Currency Intervention

Losses in regional currencies have forced central banks from India to Thailand and Indonesia to step in to defend their exchange rates.

The rupee touched a record low of 58.9850 per dollar on June 11. The Reserve Bank of India intervened the same day and the next to prevent the currency sliding to 60, according to two people with knowledge of the matter who asked not to be named because the information isn’t public.

The Bank of Thailand is taking measures to smooth volatility in the baht, and sold “a certain amount of dollars” in the past week, Governor Prasarn Trairatvorakul told reporters in Bangkok yesterday. The currency gained 0.4 percent this week to 30.52 per dollar, halting seven weeks of losses. It has dropped 6.4 percent since reaching its strongest level since 1997 in April.

Sales at U.S. retailers rose more than economists forecast in May and fewer Americans filed applications for unemployment benefit, figures released yesterday showed. Fed Chairman Ben S. Bernanke said last month stimulus could be reduced if the jobs market shows signs of sustained improvement. The Bank of Japan also refrained from adding to its stimulus this week.

World Bank

The World Bank lowered its 2013 global growth forecast to 2.2 percent from 2.4 percent this week, saying a “recovery remains hesitant and uneven.”

“Markets are just liquidating on the back of expectations the Fed will taper off quantitative easing,” said Thio Chin Loo, a senior strategist at BNP Paribas SA in Singapore.

The peso weakened beyond 43 to the dollar for the first time in a year this week as overseas investors sold $55 million more Philippine shares than they bought in the first four days, taking June net sales to $256 million, exchange data show. The country has scope to ease monetary policy to protect growth, central bank Governor Amando Tetangco said today in an interview with Rishaad Salamat on Bloomberg Television.

The central bank kept its benchmark overnight borrowing rate unchanged at 3.5 percent yesterday. The Philippine Composite Index of shares rebounded 2.1 percent today after losing 6.8 percent yesterday, the biggest decline since 2008.

‘Doing Terribly’

“The peso has been doing terribly as the stock market has dropped,” said Leong Sook Mei, Southeast Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in Singapore. “There is no need for rate cuts when the peso is weakening and the economy is Asia’s best-performing.”

Elsewhere in Asia, Malaysia’s ringgit dropped 0.6 percent this week to 3.1149 per dollar, Indonesia’s rupiah fell 0.7 percent to 9,875 and Taiwan’s dollar weakened 0.3 percent to NT$29.970. The Vietnamese dong rose 0.1 percent to 21,003, while the Chinese yuan was little changed at 6.1308.

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