China Central Bank's Easing Highlights North-South Divide in Asian Currencies

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Asian currencies have split along geographic lines in response to China’s interest-rate cut: In the north, they’re rallying on optimism stocks will stop falling, while in the south fears of a weaker yuan are pushing them lower.

Taiwan’s dollar climbed 1.1 percent against the greenback as of 3:29 p.m. in Taipei and South Korea’s won rose 0.8 percent. In Southeast Asia, Malaysia’s ringgit dropped 0.7 percent, Indonesia’s rupiah fell 0.4 percent and Thailand’s baht lost 0.3 percent.

Aimed at shoring up its plunging stock market, China’s fifth interest-rate cut since November and its lowering of banks’ reserve ratios is expected to put more downward pressure on the yuan. It has also deepened concern that the slowdown in the world’s biggest consumer of raw materials may be worse than previously thought, which would be more bad news for Southeast Asian economies that depend on commodity exports.

‘It’s a vicious cycle. If you do monetary easing, you will have more depreciation expectations on the currency,’’ said Andy Ji, a Singapore-based strategist at the Commonwealth Bank of Australia. “The easing is not going to lift commodity prices. In North Asia, people are just looking at the early stabilization of the equities markets.”

The Kospi index of shares in Seoul closed up 2.6 percent on Wednesday, the most in more than two years, while a gauge of Taiwanese stocks rose 0.5 percent following a 3.6 percent jump on Tuesday.

China’s easing follows a surprise devaluation of the yuan on Aug. 11, which spurred fears of a currency war in Asia as central banks sought weaker exchange rates to safeguard exports. The Chinese rate cut will put more downward pressure on the rupiah and Indonesia’s economic growth, said Harry Su, head of research at PT Bahana Securities in Jakarta.

“North Asia is doing a little bit better because the Southeast Asian currencies are prone to fragile risk sentiment,” said Commonwealth Bank’s Ji.