EMERGING CURRENCIES
Asia weighed down by slowdown fears
By Kevin Yao
Reuters
First Posted 16:11:00 12/01/2008
Filed Under: Economy and Business and Finance, world financial crisis, Foreign Exchange Markets, Emerging Markets Debt
SINGAPORE -- Most Asian currencies fell Monday as weak economic data fuelled investor concern about the depth of a downturn in the region, while a slide in the Chinese yuan sparked speculation of a shift in currency policy.
Among the couple of currencies that bucked the weakness, the Korean won stood out, rising 2.0 percent against the dollar as foreigners bought back some local shares and weak export data spurred expectations for rate cuts.
The Thai baht fell as far as 35.73 per dollar, down about 0.6 percent, its lowest since Feb. 2007, as Thailand's deepening political crisis prodded investors to buy dollars ahead of an expected interest rate cut.
"Dollar/baht keeps climbing higher due to prolonged unrest and rate cut speculation within this week," said a Bangkok-based trader.
Most analysts expect the Bank of Thailand to cut interest rates for the first time in 16 months when it reviews policy on Wednesday.
The Malaysian ringgit fell as low as 3.63 per dollar – its weakest level since late 2006, while the Singapore dollar hit a one-week low at 1.5247 to the US dollar.
The Indonesian rupiah briefly fell to 12,400 per dollar compared to Friday's close of 12,350.
"Some locals are buying dollars," said a trader in Jakarta. "The rupiah is in line with the region -- the Singapore dollar is weakening and Malaysian ringgit is also weakening."
Most analysts expect Indonesia's central bank to keep interest rates on hold when it reviews policy on Thursday.
Meanwhile, Asian stocks dipped on Monday to snap a six-day winning streak, with investors caught between aggressive steps by central bank to alleviate the sharp global downturn and increasingly grim economic data.
Investors fretted about a sharp slowdown in the region, with a gauge of manufacturing activity in China showing the sharpest monthly contraction in its 4-1/2-year history on plunging new orders for export goods.
South Korean exports last month dropped 18.3 percent from a year earlier. The decline, nearly twice as steep as expected, was the biggest in seven years.
"Asian FX are probably reacting to the expectations of weaker growth prospects for 2009 and the weakening link between equities and emerging currencies may indicate less panic mentality and more of a fundamental push," said Emmanuel Ng, currency strategist at OCBC Bank.
Asian currencies have in recent months moved largely in tandem with regional stocks.
YUAN DIPS
The Chinese yuan gapped down at the open and dropped as low as 6.8555 -- its weakest level since October 28.
On the offshore market, the yuan in one-year non-deliverable forwards slid to 7.2050 per dollar from Friday's close of 7.0450, its biggest daily fall in more than five years.
That fuelled speculation that China might adjust its foreign exchange policy to spur the slowing economy.
But many analysts still expect the Chinese authorities to continue to keep the yuan in tight ranges in the near term.
"Steady as it goes -- it's their policy during turbulent times," said BNP Paribas FX strategist Thio Chin Loo.
Analysts at UBS said in a note that they expect a stable yuan over the next 12 months -- extending a range-bound streak since July, given the currency was kept flat during the 1997/98 Asian financial crisis.
Morgan Stanley economist Qing Wang argued that China would continue to post a solid trade surplus even as exports slow.
"It's unlikely we will see any policy adjustment to allow sustained yuan depreciation," he said.
Philippine markets were closed for a public holiday.
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