Asian currencies dive in week as Fed tapering spurs outflows

Most Asian currencies fell last week as signs of an improving US economy bolstered demand for the dollar amid tapering from the Federal Reserve that’s spurring outflows from emerging markets.

Global funds pulled $3.6bn from South Korean, Thai, Philippine and Indonesian stocks so far in December as the Fed prepares to pare stimulus in January, exchange data show. The Thai baht led losses this week as the two-month-long political protests escalated, raising concerns about economic growth and tourism. Trading was muted due to closures in many markets for the Christmas holidays, according to Malayan Banking Bhd.

“Most Asian currencies weakened because of the broad dollar strength,” said Saktiandi Supaat, head of foreign- exchange research at Malayan Banking in Singapore. “The positive US data also supports the case for further Fed tapering.”

The baht depreciated 0.8% from December 20 to 32.873 per dollar in Bangkok, having touched 32.882, the weakest level since February 2010, according to data compiled by Bloomberg. Indonesia’s rupiah fell 0.4% to 12,263 before touching a five-year low of 12,281.

The Fed announced on December 18 it will trim its monthly bond purchases to $75bn from $85bn starting next month. Initial jobless claims dropped more than forecast last week to 338,000, while consumer confidence climbed.

The rupiah is leading the year’s declines among Asian currencies, having fallen 21.4% as investors anticipated a cut in US stimulus. The Indian rupee slumped 11.1%, the Philippine peso dropped 7.5% and Malaysia’s ringgit 7%, according to data compiled by Bloomberg.

“When you look into 2014, the Fed taper has given people an excuse to support the dollar,” said Gundy Cahyadi, a Singapore-based economist at DBS Group Holdings. “In Asia, some economies such as Thailand and Indonesia are grappling with a lot of political noises.”

The baht fell for a second week and is down 7% in 2013, headed for its worst annual performance since 2000. The Election Commission urged the government to delay a February 2 poll after protesters tried to storm a Bangkok arena where candidates were registering, sparking a riot that killed one person and injured 128.

There’s been a series of street demonstrations aimed at toppling Prime Minister Yingluck Shinawatra, who dissolved parliament on December 9. The baht’s drop has been “orderly,” as the market adjusts to the Fed’s stimulus reduction and the political unrest, Bank of Thailand spokeswoman Roong Mallikamas said on December 23.

South Korea’s won and the peso bucked the weakening trend. Trading is quiet this week and could remain that way through the New Year as most people are still away on holidays, Malayan Banking’s Supaat said.

The won strengthened 0.7% from December 20 to 1,054.36 per dollar, following a decline of 0.8% last week, data compiled by Bloomberg show. It rallied 1.4% to 10.05 against the yen, rising for a seventh straight week. In 2013, the won climbed 1% versus the dollar, trailing a gain of 2.7% in the Chinese yuan, Asia’s best performance.

The South Korean currency’s movements versus the yen have been “relatively fast” and are “problematic,” Vice Finance Minister Choo Kyung Ho said December 19. Manufacturers’ business confidence rose to 79 for January, from this month’s 78, according to official data. The Bank of Korea will manage its policy rate next year to support economic growth and ensure price stability, the central bank said in an e-mailed statement after a board meeting on
December 26.

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