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Asia Currencies Slide in Week as Fed Stance Boosts Dollar Demand

Asian currencies had a second weekly decline as an improving U.S. economy and the Federal Reserve’s decision not to embark on further monetary easing boosted demand for the dollar.

Malaysia’s ringgit led losses after the government reported factory production rose the least in six months in January following data last week showing the smallest increase in exports since 2010. The rupee posted its worst weekly losing streak for the year after policy makers left interest rates unchanged, citing inflation risks caused by higher oil prices.

“This week’s main trend was the dollar’s appreciation supported by signs of U.S. economic improvement,” said Minori Uchida, a senior analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. “Based on the series of data recently, the market also views the Fed may not keep low interest rates until 2014 as previously predicted.”

The ringgit fell 1.7 percent from a week ago to 3.0613 per dollar in Kuala Lumpur yesterday, after reaching a seven-week low on March 15, according to data compiled by Bloomberg. The Philippine peso declined 1.1 percent to 43.068, the rupee dropped 0.7 percent to 50.1912, and South Korea’s won lost 0.7 percent to 1,125.78.

Other reports from Asia this week signaled economic growth in the region is starting to slow. Thailand’s exports contracted for a third month in January, while China reported its worst trade deficit since at least 1989 for February. The Bloomberg- JPMorgan Asia Dollar Index (ADXY), which tracks the region’s 10 most- active currencies excluding the yen, fell 0.5 percent.

U.S. Data Stimulus
In contrast, U.S. data issued this week showed Americans applied for fewer jobless benefits, growth in retail sales accelerated and manufacturing gained momentum. The Dollar Index (DXY) traded on ICE Futures in New York, which tracks the currency against those of six major trading partners, rose for a third week and reached its highest level in almost two months.

China’s yuan fell for a third week after the government reported the smallest increase in consumer prices in 20 months on March 9. The central bank weakened its daily reference rate by 0.25 percent yesterday, the most in a week, to 6.3200 per dollar. The currency dropped 0.2 percent from March 9 to 6.3227 in Shanghai, according to the China Foreign Exchange Trade System.

“China’s policy makers are definitely increasing volatility,” said Craig Chan, the Singapore-based head of foreign exchange for Asia outside of Japan at Nomura Holdings Inc. “They want to eventually move to a more market-driven currency.”

Oil Pressure
The won traded near a one-month low after the Bank of Korea said on March 14 that the unemployment rate unexpectedly jumped to 3.7 percent in February, the highest in almost a year.

Indonesia’s rupiah dropped 0.4 percent to 9,156 per dollar and hit a two-month low of 9,218 on March 15. The currency completed a second weekly decline after overseas investors cut holdings of sovereign debt on concern government plans to raise energy prices will stoke inflation.

Global funds have trimmed bond ownership by 6.1 trillion rupiah ($665 million) since Feb. 22, when President Susilo Bambang Yudhoyono said fuel subsidies must be reduced.

“The biggest factor driving the rupiah is still the plan to raise fuel prices, which caused inflation expectations in Indonesia to rise significantly,” said Mika Martumpal, an analyst at PT Bank CIMB Niaga in Jakarta.

Elsewhere this week, Thailand’s baht fell 0.5 percent to 30.75 per dollar, while Taiwan’s dollar slipped 0.2 percent to NT$29.562 and Vietnam’s dong rose 0.1 percent to 20,820.