Asian monies drop; China snubs calls for yuan peg
Asian monies drop; China snubs calls for yuan peg
Christina Soon, Blooomberg, Singapore
The South Korean won fell on concern the central bank will sell it to support exports as China damped speculation it will allow its currency to rise. A gain in China's yuan would help increase demand for other Asian countries' goods.
The won slid for a first day in three, leading currencies in the region lower, after China's Vice-Premier Huang Ju and deputy central bank governor Li Ruogu on Jan. 29 said they want a stable exchange rate. A rising yuan would raise China's purchasing power in Asia and make the country's exports costlier to buy abroad.
"Market players are very concerned about the central bank's intervention" to sell won, said June Geun Park, a trader at BNP Paribas in Seoul. "Some traders are also covering their short dollar positions" by buying the dollars after China's comments. Traders take out short positions to bet on a currency's decline.
The won fell 0.2 percent to 1,025.60 against the dollar as of 4 p.m. local time, according to Seoul Money Brokerage Services Ltd. South Korea's currency on Jan. 28 completed its largest weekly gain since the five days ended Nov. 26. Each yen today bought 9.9 won, compared with 10 won a week ago, Bloomberg data show.
A rising won makes it tougher for exporters to cut prices overseas and attract buyers. Exports likely rose 14 percent this month from a year ago, which would be the smallest gain since August 2003, after climbing 20 percent in December, according to the median forecast of 10 economists surveyed by Bloomberg News.
The commerce ministry is due to report the figures tomorrow. Exports make up about 40 percent of South Korea's economy.
The Singapore dollar and Thailand's baht also fell as some investors bet China will adjust its fixed exchange rate later than previously expected.
"It isn't suitable to blindly revalue while preparations are not complete," four economists, from the National Bureau of Statistics wrote in a signed commentary published by the China Business Post. The statistics bureau's spokesman Zheng Jingping was one of the economists.
Asian currencies rose last week as China's Fan Gang, director of the state-owned National Economic Research Institute in Beijing, on Jan. 27 said the issue is how to broaden the yuan's dollar peg to include other counterparts such as the euro and yen.
China's Huang and Li on Jan. 29 rejected accusations at the World Economic Forum in Davos, Switzerland, that the peg gives their country's exports an unfair advantage. They said China wants a "stable" exchange rate.
The Group of Seven industrialized countries have since September 2003 called on China to make the peg more flexible. G-7 finance ministers and central bankers meet in London on Feb. 4-5.
Without a yuan appreciation to help raise Chinese demand for Asian goods, other regional countries may not tolerate gains in their currencies.
The Chinese remarks "mean we're not going to see anything" on the yuan peg, "so the dollar will trade at higher levels against Asian currencies," said Jimmy Koh, treasury research head in Singapore at UOB Group, an affiliate of United Overseas Bank. "There'll be some unwinding of long dollar positions."
Some investors such as Steven Chang, vice president of global markets in Hong Kong at State Street Bank & Trust Co., bet inflows of funds into Asia will still strengthen regional currencies.
The Taiwan dollar strengthened 0.1 percent to NT$31.776 after sliding as much as 0.4 percent, according to Taipei Forex Inc.
Overseas investors today bought a net US$230 million of Taiwan's shares, the most since Dec. 29, according to stock exchange figures. Last week, they purchased a net $180 million of South Korean stocks, and $91 million of Thai equities.
"The market is still focusing on capital flows, and is favoring Asian currencies," Chang said. "Though China's not going to move" its peg, "the money is not going to be moving away very quickly." Chang declined to give currency forecasts.
South Korea's won may gain as far as 1,000 in the next six months partly because the government is selling fewer bonds, the proceeds of which it uses to buy dollars to curb the currency's advance, Irene Cheung, Singapore-based head of Asia sovereign and foreign-exchange strategy at ABN Amro Bank NV, wrote in a report.
Speculation that the Federal Reserve will increase interest rates as the U.S. economy grows may deter some investors from non- dollar assets, UOB's Koh said.
The Fed meets on Feb. 1-2, and will raise its target interest rate for overnight loans between banks by a quarter percentage point for the sixth time since June, to 2.5 percent, according to 77 of 80 economists surveyed by Bloomberg.
The Labor Department on Feb. 4 will say the economy created 200,000 jobs, according to the median forecast in a Bloomberg poll of 58 economists. Job creation averaged 186,000 a month last year.