Asian currencies fall on Fed-triggered sell-off

Asian currencies fell for a fourth month, led by India's rupee and Indonesia's rupiah, as investors pulled money from regional assets on slowing economic growth and an expected reduction in stimulus by the Federal Reserve.

The Bloomberg-JPMorgan Asia Dollar Index lost 1.1 per cent in August, the biggest drop since May. The rupee completed its worst month since 1992 and the rupiah headed for its biggest decline in five years, as analysts cut expansion forecasts for the two economies. Foreign funds pulled $4.5 billion from Taiwanese, Thai, Indian and Indonesian stocks in August, exchange data show, as 65 per cent of economists surveyed by Bloomberg forecast the Fed will start to taper next month.

"Weak sentiment continues as Asian economies have to show really good numbers to encourage investors," said Nalin Chutchotitham, a Bangkok-based analyst at Kasikornbank Pcl.

The rupee weakened 8.1 per cent this month to 65.7050 a dollar in Mumbai, according to data compiled by Bloomberg. The rupiah dropped 5.9 per cent to 10,920, the Philippine peso declined 2.6 per cent to 44.605 and Thailand's baht lost 2.7 per cent to 32.15.

Standard Chartered Plc cut its 2013-2014 growth forecast for India to 4.7 per cent from 5.5 per cent on Aug. 29, while UBS AG this week reduced its estimate for Indonesia's 2013 growth to 5.6 per cent from six per cent. Thailand entered a recession for the first time since 2009, contracting 0.3 per cent in the second quarter from the previous three months, when it decreased 1.7 per cent, official data show.

Emergency measures
The rupee had its biggest gain since 1986 on August 29 on speculation a central bank plan to supply dollars to the largest oil buyers would cool demand for foreign exchange. The currency resumed falling yesterday.

"Sharp weakness in the India rupee is starting to weigh on India's economy," Priyanka Kishore, a London-based analyst at Standard Chartered, wrote in a report on August 29. "The global backdrop remains challenging due to Fed tapering concerns."

The rupiah advanced after Bank Indonesia raised its benchmark interest rate on August 29 to a four-year high in an unscheduled move to stem exchange-rate weakness. The reference rate was boosted by 50 basis points to seven per cent, before a September 2 report that economists predict will show faster inflation.

"Bank Indonesia's move seeks to preempt August inflation, which may reflect the impact of a weaker rupiah," said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp in Singapore. "The initial market response has been positive."

Ringgit weakens
Malaysia's ringgit had its fourth monthly drop as the nation's deteriorating current-account position spurred concern among investors. The surplus in the broadest measure of trade shrank 70 per cent to 2.6 billion ringgit ($792 million) in the second quarter, data showed last week. The ringgit weakened 1.2 per cent in August to 3.2847 per dollar.

"The Fed's taper has shifted the market's focus to emerging-market asset values and imbalances such as the deterioration in current accounts," said Nizam Idris, the head of fixed income and currency strategy at Macquarie Bank in Singapore. "The market is re-pricing Malaysia's assets."

Elsewhere in Asia, China"s yuan rose 0.15 per cent this month to 6.1195 per dollar. South Korea's won gained 1.2 per cent to 1,110.04, Taiwan's dollar advanced 0.5 per cent to NT$29.983 and Vietnam's dong strengthened 0.1 per cent to 21,150.