Asian Currencies Drop This Week on Ukraine Crisis, U.S. Recovery

Asian currencies recorded their first weekly loss in almost a month as conflict in Ukraine and a strengthening U.S. economy spurred demand for dollars.

After four-way talks on the Ukraine crisis produced an accord this week aimed at de-escalating the situation, U.S. officials and their European allies warned that Russia must help produce results in days or face new sanctions. The U.S. currency had its biggest five-day advance since March 21 after retail sales and factory output beat economists’ estimates.

“There’s some spillover of concerns coming from Ukraine and there’s an element of risk premium, so that’s why people are going into safer assets,” said Wong Chee Seng, a Kuala Lumpur-based currency strategist at AmBank Group. “The U.S. data has helped to boost the dollar.”

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, dropped 0.2 percent this week to 115.55. Taiwan’s currency retreated 0.3 percent from April 11 to NT$30.230 against the greenback in Taipei, South Korea’s won declined 0.2 percent to 1,037.58 and Malaysia’s ringgit fell 0.1 percent to 3.2405.

Financial markets in Hong Kong, Singapore, India, Indonesia and the Philippines are shut yesterday for the Easter holidays. In the shortened week of trading, India’s rupee fell 0.2 percent to 60.2910, the Indonesian rupiah dropped 0.1 percent to 11,420 and the Philippine peso declined 0.3 percent to 44.443.

Rate Outlook

The Bloomberg Dollar Spot Index climbed 0.4 percent during the week on speculation improving U.S. economic data will prompt the Federal Reserve to keep cutting stimulus. Fed Chair Janet Yellen, speaking to the Economic Club of New York on April 16, indicated that U.S. interest rates will stay low to support its objectives on inflation and employment, while “maintaining a degree of accommodation” to aid the recovery.

The Fed started paring its bond-purchase program this year, raising concern inflows to emerging markets will slow.

In Malaysia, the central bank damped speculation that interest rates will rise in contrast to the Philippines, where policy makers have started to tighten.

Bank Negara Malaysia Governor Zeti Akhtar Aziz said in an interview in Washington last weekend that the nation’s accelerating inflation doesn’t make her nervous, even as consumer prices rose 3.5 percent in March and February, the fastest pace since June 2011.

While Malaysia’s one-year interest-rate swaps fell two basis points this week to 3.5 percent, they indicate investors see the central bank increasing the key rate from 3 percent. The benchmark has stayed unchanged since 2011. Twelve of 17 economists surveyed by Bloomberg predict the rate will rise by at least 25 basis points this year.

Philippine Tightening

The Philippines’ record-low benchmark interest rate isn’t sacred and will need to be reviewed as the central bank guards against price pressures, Deputy Governor Diwa Guinigundo said in an April 12 interview. Bangko Sentral ng Pilipinas ordered lenders to set aside more money as reserves from April 4, a move that may herald an increase in the key rate, which has been held at 3.5 percent since October 2012.

In Ukraine, pro-Russian separatists have occupied some government buildings in the eastern part of the country following President Vladimir Putin’s annexation of the Crimean peninsula. The agreement reached between the U.S., the European Union, Ukraine and Russia this week called for illegal armed groups to be disarmed, seized buildings to be returned to their owners and occupied public places to be vacated.

Elsewhere in Asia this week, Thailand’s baht strengthened 0.3 percent to 32.184 per dollar, while Vietnam’s dong was little changed at 21,100. China’s yuan fell 0.21 percent to 6.2242.

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