Rupiah Leads Asian Currencies’ Decline on Fed Taper Speculation

Asian currencies fell this week, led by the Indonesian rupiah’s decline to a four-year low, on concern signs of a U.S. economic recovery would support a reduction in stimulus that has fueled emerging-market inflows.

U.S. service industries grew in August at the fastest pace in almost eight years, strengthening the case for tapering when the Federal Reserve meets Sept. 17-18 to review its bond-buying program. Barclays Plc says yields on 10-year Treasuries, which touched a two-year high, will lure investors as exchange data show global funds pulled $141 million from Indian, Indonesian, Philippine and Thai stocks this week. Asian markets closed yesterday before a report showed U.S. payrolls rose less than expected, easing concern about the size of potential cuts to Fed bond purchases.

“The battle, which all currencies in Asia are facing, is rising U.S. Treasury yields and the Fed meeting later in the month,” said Hamish Pepper, a currency strategist at Barclays in Singapore. “Ultimately, that’s going to cap any appreciation in Asian currencies in the near term.”

The rupiah declined 2.3 percent this week to 11,175 per dollar and reached a four-year low of 11,205 earlier, prices from local banks show. Malaysia’s ringgit weakened 1.3 percent to 3.3290 and the Thai baht retreated 0.7 percent to 32.380.

Morgan Stanley lowered its 2013 and 2014 growth forecasts for the four largest Southeast Asian economies of Indonesia, Malaysia, Singapore and Thailand, citing a weaker-than-expected first half and an uncertain outlook, Singapore-based economist Deyi Tan wrote in a Sept. 3 note.

Indonesia, Malaysia

Indonesia’s trade deficit reached a record $2.3 billion in July as exports fell on lower global commodity prices, official data showed Sept. 2. The nation’s current-account shortfall will narrow in the third quarter, from about 4.4 percent of gross domestic product in the previous three months as a slowing economy and higher fuel prices curb imports, Finance Minister Chatib Basri said in a Sept. 5 interview.

The ringgit had its biggest weekly loss in five on speculation outflows will accelerate should the Fed begin tapering stimulus this month. Foreign holdings of Malaysian government and corporate debt securities fell 5.7 percent in July to 216 billion ringgit ($65 billion), the biggest drop since September 2011, the latest central bank figures show.

Prime Minister Najib Razak raised fuel prices on Sept. 3, the first increase since 2010, and delayed some state building projects with high import content to address a shrinking current-account surplus. The measures came after Fitch Ratings said that Malaysia faced the prospect of a rating cut due to its weak fiscal position.

Won Advances

The Bloomberg-JPMorgan Asia Dollar Index climbed 0.2 percent this week to 114.45, as the South Korean won rallied 1.6 percent to 1092.93 per dollar. The Indian rupee rose 0.7 percent to 65.25 and Taiwan’s dollar gained 0.3 percent to NT$29.9.

President Barack Obama is seeking diplomatic backing for a U.S. military strike on Syria as he attends a meeting of the Group of 20 nations in St. Petersburg, Russia.

Non-farm payrolls in the world’s largest economy increased by 169,000 in August, missing the 180,000 median estimate of economists in a Bloomberg survey, a report showed yesterday.

“The biggest focus in the market now is the U.S. employment data to assess the outlook for the Fed’s reduction in stimulus,” Hideki Hayashi, a researcher at the Japan Center for Economic Research in Tokyo, said before the data. “Emerging-market currencies and assets are under downward pressure at this moment. Syria tensions are adding to weak sentiment.”

Elsewhere in Asia, China’s yuan was little changed this week at 6.1205 per dollar, the Philippine peso climbed 0.3 percent to 44.475 and Vietnam’s dong rose 0.1 percent to 21,125.

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