Asia Currencies Drop This Week as Surprise ECB Cuts Boost Dollar

Asian currencies had their biggest weekly drop in more than a month as demand for the dollar rose on the widening interest-rate gap with the euro.

The Bloomberg-JPMorgan Asia Dollar Index fell 0.2 percent this week in the steepest drop since the period through Aug. 1. South Korea’s won and Malaysia’s ringgit led losses after an unexpected cut in the European Central Bank’s benchmark rates. Improving U.S. data are increasing the odds the Federal Reserve will raise borrowing costs next year.

“The U.S. dollar strength has spilled over in emerging Asian currencies,” said Jonathan Cavenagh, a Singapore-based foreign-exchange strategist at Westpac Banking Corp. “The strengthening U.S. economy is creating expectations that U.S. rates will rise sooner rather than later.”

The ringgit fell 1 percent this week to 3.1825 per dollar as of 5:18 p.m. in Kuala Lumpur, data compiled by Bloomberg show. The won fell 1 percent to 1,024.25, Indonesia’s rupiah lost 0.5 percent to 11,755 and the Thai baht dropped 0.4 percent to 32.081. The Bloomberg Dollar Spot Index tracking the currency against 10 major peers touched a 13-month high.

ECB President Mario Draghi lowered the benchmark refinancing and deposit rates yesterday to 0.05 percent and minus 0.2 percent, respectively, weakening the euro 1.6 percent in the biggest drop since November 2011.

U.S. Jobs

Fed Chair Janet Yellen told central bankers in Jackson Hole, Wyoming, last month that U.S. policy makers may raise interest rates sooner than investors anticipate amid labor-market gains.

A report today may show U.S. employers created 230,000 new jobs last month after taking on 209,000 workers in July, according to the median forecast in a Bloomberg survey. Growth in U.S. manufacturing and services industries topped economists’ estimates in August, data showed this week.

“The euro-dollar moved so much, obviously you will have a reaction in dollar-Asia,” said Andy Ji, a Singapore-based currency strategist at Commonwealth Bank of Australia. “Once the market digests the big euro-dollar move, next week we’ll see Asian currencies being supported.”

The won completed its biggest weekly loss in more than a month before the three-day Chuseok holiday starting Sept. 8.

“The globally strong dollar triggered by the ECB meeting will affect the won,” said Park Daebong, a Seoul-based currency trader for Nonghyup Bank.

Elsewhere in Asia this week, the Philippine peso declined 0.1 percent to 43.662 per dollar and Taiwan’s currency fell 0.1 percent to NT$30.002. China’s yuan strengthened 0.03 percent to 6.1412, India’s rupee rose 0.1 percent to 60.445 and the Vietnamese dong was steady at 21,195.

Before it's here, it's on the Bloomberg Terminal.