Asian Currencies: Indian Rupee, Peso Lead Weekly Gain on Oil

By Lilian Karunungan and Anoop Agrawal

July 26 (Bloomberg) -- The Indian rupee and the Philippine peso led a weekly advance among Asian currencies on speculation oil prices near the lowest in seven weeks will reduce demand for dollars from importers.

The rupee posted its best week in four months as exporters may have converted overseas earnings to guard against further currency gains. A stronger rupee erodes revenue from overseas shipments in local-currency terms. Crude oil in New York declined for a third week, helping lower India's import costs.

``The oil slump has been instrumental in subduing dollar demand,'' said P.V. Rao, a currency trader at IndusInd Bank Ltd. in Mumbai. ``Sentiment for the rupee is strengthening and gauging that, exporters are also probably reducing their dollar receivables.''

The rupee gained 1.2 percent this week to 42.265 per dollar in Mumbai, according to data compiled by Bloomberg. It may strengthen to 42.10 next week, Rao said. The Philippine peso rose 0.9 percent from last week to 44.07 in Manila, according to Tullett Prebon Plc.

The Indian currency rallied 1.5 percent on July 23, the biggest gain in more than a decade, on speculation the government will allow more overseas investment in the financial industry after Prime Minister Manmohan Singh survived a confidence vote in parliament the previous day.

Crude oil futures touched $123.50 a barrel on July 24, a seven-week low, down 16 percent from their all-time high of $147.27, Bloomberg data show.

Monthly Gain

The peso was poised for its first monthly gain since February, buoyed by cheaper oil and speculation the central bank will raise interest rates to keep inflation in check.

The currency jumped 1.3 percent on July 23, the most in almost seven years, after Bangko Sentral ng Pilipinas Governor Amando Tetangco said higher borrowing costs ``cannot be ruled out.'' The bank last week raised its benchmark interest rate by a half-percentage point, sparking the peso's first weekly gain in three months.

``The Bangko Sentral has been a little bit aggressive in hiking rates, surprising the market,'' said Ed Garcia, a currency trader at East West Banking Corp. in Manila. ``This week, they've been in the news, saying more aggressive rate hikes are on the table.''

Oil's Decline

Crude oil's decline also helped the peso gain, according to Garcia and Lito Biacora, vice president for treasury at Bank of the Philippine Islands in Manila.

``The easing pressure on inflation in relation to lower crude prices seems to provide reason for funds to shift to higher-yielding assets,'' Biacora said.

South Korea's won advanced this week on speculation the government bought the currency to help contain inflation.

The won has gained 3.8 percent this month, the best performance among the 16 most-active major currencies as Vice Finance Minister Kim Dong Soo said July 24 that the government will monitor for ``herd behavior'' in the foreign-exchange market. A central bank report yesterday showed the economy maintained its growth in the second quarter as export gains made up for shrinking consumer spending.

``Market players are worried about strong interventions,'' said Jeff Kim, a currency dealer at Korea Exchange Bank in Seoul. ``The government is keen to keep the won stable.''

The won climbed 0.5 percent this week to 1,009.20 in Seoul, from 1,013.80 last week, according to Seoul Money Brokerage Services Ltd. It dropped 0.2 percent yesterday.

Immediate Concern

Malaysia's ringgit snapped a two-week advance as the central bank unexpectedly refrained from increasing interest rates yesterday. ``The immediate concern is to avoid a fundamental economic slowdown,'' Bank Negara Malaysia said in a statement.

Policy makers have kept the benchmark rate on hold at 3.5 percent since April 2006. The currency traded near the lowest level in two weeks after a U.S. report showed home sales fell to the least in 10 years.

The ringgit dropped 0.3 percent this week to 3.25, Bloomberg data showed.

``If you don't hike rates, the ringgit could hit 3.28 or beyond,'' Suresh Kumar Ramanathan, a currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur, said before the decision.

Elsewhere, the Singapore dollar fell 0.4 percent this week to S$1.3588 against the U.S. currency. The Taiwan dollar dropped 0.2 percent to NT$30.407 and the Thai baht declined 0.3 percent to 33.42 per dollar. Vietnam's dong was unchanged at 16,795 versus a week ago.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net.