Asian currencies drop on speculation central banks will sell
Asian currencies drop on speculation central banks will sell
Christina Soon Bloomberg Singapore
The South Korean won had its biggest drop in almost seven months on speculation the central bank will sell the currency to protect exporters. Singapore and Taiwan's dollars also fell.
Korea's overseas shipments, which rose by a third in the first 11 months of this year and were the main driver of economic growth, are likely to slow next year, Finance Minister Lee Hun Jai said in an interview on Dec. 6. South Korea's economy faces "many downside risks," he said.
"The authorities may want to support the dollar against the won, as they're worried about the rapid pace of appreciation," said Roh Sang Chil, a foreign-exchange trader at Kookmin Bank in Seoul. The won's gain this year may be close to ending, he said.
The won fell 0.7 percent to 1,049 against the dollar as of 12:40 p.m. in Seoul, its largest drop since May 10, according to Seoul Money Brokerage Services Ltd. The currency's decline cut this year's advance to less than 14 percent.
A strengthening won makes Korean goods more expensive for overseas buyers. The currency's appreciation "is having an impact" on earnings, Chu Woo Sik, Seoul-based head of investor relations at Samsung Electronics Co., South Korea's largest exporter, said on Nov. 10.
The won will probably extend its decline after stock exchange figures yesterday showed overseas investors were net sellers of South Korean stocks for the 12th day, Kookmin Bank's Byun said. The net equity sales of US$744 million spurred concern those money managers will sell the currency as they take funds home.
"The won sharply appreciated within a very short time, so some foreigners don't think there'll be any more appreciation in the next foreseeable period," prompting them to buy dollars, said Sang Hyun Ahn, a currency dealer in Seoul at Citibank Korea Inc.
Asia-Pacific currencies except the Pakistani and Sri Lankan rupees gained against the dollar in the past three months.
Some Asian central banks may also take advantage of any regional currency losses to sell, said Erik Herzfeld, head of JPMorgan Chase & Co.'s options dealing in Singapore.
"I don't think Asian currencies are going to make any new highs," Herzfeld said. Now represents "better timing" for authorities to sell their currencies. It may be less costly for central banks to fight the rising trend as some investors are selling their Asian currencies, he said.
The Taiwan dollar fell 0.1 percent to NT$32.146, according to Taipei Forex Inc. The Philippine peso was little changed at 56.027, according to the Bankers Association of the Philippines.
Bank of Thailand Governor Pridiyathorn Devakula yesterday suggested the central bank sold the baht to help exporters.
"The central bank has been stabilizing the baht to prevent it from excessive fluctuation," Pridiyathorn said. "Too much fluctuation in the baht's exchange rate will hurt exporters."
The baht weakened 0.2 percent to 39.19, Singapore's dollar slid 0.4 percent to S$1.6409, and the Indonesian rupiah was at Rp 9,138 from Rp 9,090.
Speculation China will adjust its yuan peg to allow for an appreciation may attract global investors to the region's assets.
A stronger yuan may boost China's buying power in the region and make their exports less competitive, allowing other regional nations to let their currencies rise.
China's Central Bank Governor Zhou Xiaochuan yesterday said the country's fixed foreign-exchange rate causes risks for domestic banks and companies.
"Asian currencies will move in tandem with the yuan" should the Chinese currency be allowed to rise, said Arjuna Mahendran, Singapore-based chief economist and strategist for Asia Pacific at Credit Suisse Private Banking. The yuan peg is one reason "holding Asian currencies down."
The government may adjust its yuan peg of around 8.3 to the dollar within the first half next year, Mahendran said.
The Singapore dollar will probably rise to S$1.62 in six months, and South Korea's won may strengthen to 1,000, he said.
The Bank of Korea may leave interest rates unchanged at a record low of 3.25 percent when policy makers meet tomorrow, said all but four of 13 economists and bond analysts surveyed by Bloomberg News.
The won may extend its decline should the central bank lower rates by a quarter of a percentage point, Citibank Korea's Ahn said.
Finance Minister Lee on Dec. 6 suggested the country may need further rate cuts and higher spending to achieve economic growth of 5 percent in 2005.