Won Leads Drop in Asian Currencies After Fed Taper; Bonds Mixed

South Korea’s won led declines in Asian currencies after the Federal Reserve said it will reduce stimulus that has fueled demand for emerging-market assets. Government bonds were mixed.

The Fed said yesterday it will cut its monthly bond purchases to $75 billion from $85 billion amid an improved outlook for the job market in the world’s largest economy, while pledging to hold interest rates close to zero. The MSCI Asia Pacific Index of shares rose for a third day as U.S. policy makers also reduced their projection for unemployment.

“It’s probably just a short-term reaction to the tapering announcement, but I don’t see a sharp sell-off from here,” said Shigehisa Shiroki, chief trader on the Asian and emerging-markets team at Mizuho Corporate Bank Ltd. in Tokyo. “Stocks remain solid and short-term rates are not rising so much. The U.S. economic recovery would benefit Asia and I am not so bearish on the region’s currencies.”

The won fell 0.8 percent to 1,059.77 per dollar as of 11:55 a.m. in Seoul, according to data compiled by Bloomberg. Malaysia’s ringgit declined 0.5 percent to 3.2754, reaching a three-month low of 3.2774 earlier, while Indonesia’s rupiah fell 0.2 percent to 12,203 and touched its weakest level in five years. The Thai baht depreciated 0.2 percent to 32.34.

The yield on the 4.125 percent Thai sovereign bonds due November 2016 fell two basis points, or 0.02 percentage point, to 2.98 percent, and that on similar-maturity notes in South Korea rose one basis point to 2.90 percent, data compiled by Bloomberg show. The rate in Indonesia was steady at 7.848 percent.

Monitoring Reaction

The U.S. central bank said its benchmark interest rate is likely to stay low “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below” the Fed’s 2 percent goal.

The won fell by the most since July 31. South Korea will monitor the market reaction to the Fed’s decision to trim its bond purchases by $10 billion from January, Finance Minister Hyun Oh Seok said at a meeting in Seoul today. The decision was predicted by only 34 percent of economists surveyed in a Dec. 6 Bloomberg poll. Overseas investors bought more South Korean stocks than they sold today, exchange data show.

“The fall may be limited as the decision eased also uncertainty and foreign funds are expected to come into emerging markets for higher returns,” said Han Sung Min, a currency trader at Busan Bank in Seoul.

Underperforming Asean

Southeast Asian currencies will underperform their northern peers after the tapering announcement, according to Jonathan Cavenagh, a Singapore-based foreign-exchange strategist at Westpac Banking Corp. The announcement “biases the dollar higher in the near term,” he said.

The ringgit weakened for a seventh day, the longest losing streak since August, and the five-year sovereign bond yield rose three basis points to a four-month high of 3.7 percent. Overseas investors held 30 percent of Malaysian government bonds in October, compared with 18 percent in Thailand, official data show.

The ringgit’s decline was spurred by the Fed’s decision although it was less severe than the drop in major currencies as “people had factored in a tapering,” said Wong Chee Seng, currency strategist at AmBank Group in Kuala Lumpur. “The uncertainty about the tapering is removed so the risk premium for Asian currencies is also reduced.”

Deficit, Politics

The rupiah fell to a five-year low after Deputy Finance Minister Bambang Brodjonegoro said yesterday Southeast Asia’s largest economy will revise its rupiah estimate in its 2014 budget from the current 10,500 per dollar. The nation’s current-account shortfall was $8.4 billion last quarter, or about 3.8 percent of gross domestic product. The deficit will probably reach $30 billion to $31 billion in 2013, from $24.4 billion last year, Finance Minister Chatib Basri said Nov. 27.

The baht touched its lowest level since Dec. 6 as anti-government protesters said they plan to march around Bangkok in a two-day campaign to attract supporters ahead of a rally on Dec. 22 to force Prime Minister Yingluck Shinawatra to relinquish office.

“It’s hard for investors to buy Thailand due to its domestic issues,” Mizuho’s Shiroki said. “Investors will be more selective and each country’s own factors would influence decisions. South Korea and Taiwan may see some buying.”

Elsewhere, the Philippine peso weakened 0.3 percent to 44.415 per dollar, while Taiwan’s dollar fell 0.1 percent to NT$29.775. Vietnam’s dong was steady at 21,105.

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