Asian Currencies: Malaysian Ringgit and Won Fall on Oil, Stocks

By Lilian Karunungan and David Yong

July 2 (Bloomberg) -- Malaysia's ringgit led losses in Asian currencies on concern record oil prices will slow growth as inflation hurts consumer spending and erodes profit margins.

The Malaysian currency touched a five-month low as investors reduced holdings of local stocks and bonds last quarter on heightened political risks after Prime Minister Abdullah Ahmad Badawi rejected calls for his resignation. Seven out of 10 most-active Asian currencies outside of Japan fell after crude oil traded above $140 a barrel, extending six quarters of increases. Investors also sold regional stocks, which dropped for the ninth time in 10 days.

``Inflationary risks that includes higher oil prices are undermining asset prices,'' said Patrick Bennett, a currency strategist with Societe Generale SA in Hong Kong. ``Equities are under quite broad pressure. That coupled with slowing external demand is really a difficult combination for Asian currencies.''

The ringgit traded at 3.2743 versus the dollar as of 11:35 a.m. in Kuala Lumpur, versus 3.2665 late yesterday, according to data compiled by Bloomberg. It earlier fell to 3.2825, the weakest since Jan. 24. The won fell 0.2 percent to 1,048.50 in Seoul, according to Seoul Money Brokerage Services Ltd.

``There are fundamental issues about inflation, consumer spending and earnings visibility, resulting in recent market liquidation,'' said Pankaj Kumar, who manages $540 million of assets as chief investment officer at Kurnia Insurans Bhd. in Petaling Jaya, near Kuala Lumpur. ``Some of the foreign hot money is getting out and the odds are also against the ringgit appreciating sooner.''

Political Risks

Crude oil for August delivery rose 1.1 percent to $142.07 a barrel, after reaching an all-time high of $143.67 on June 30. Malaysia has raised retail fuel prices seven times since May 2004 to reduce the amount it pays in fuel subsidies, pushing inflation to a 22-month high in May.

Some 10,000 Malaysians rallied in Kuala Lumpur yesterday to support opposition leader Anwar Ibrahim, who is facing a new sodomy allegation he rejected as an attempt to derail his political comeback.

``The political climate has certainly risen several notches over the last couple of days,'' said Tricia Yeoh, a director at the Center for Public Policy Studies in Kuala Lumpur. ``Even politicians are thrown into shock and disarray.''

South Korea's won fell for a fourth day on speculation soaring oil prices will increase import costs, boosting demand for the dollar.

Six-Week Low

The won traded near a six-week low as crude oil rose for a second day. Korea imports almost all of its energy needs. Demand for the currency also weakened after global funds sold more local shares than they bought for an 18th day.

``With a spike in raw material prices and stock sales by foreigners, demand for the dollar is only intensifying,'' said Kim Sung Soon, a currency dealer with Industrial Bank of Korea in Seoul. ``The market is still fearful that the authorities might step in to shore up the local currency.''

The won has declined 11 percent this year, making it Asia's worst performer after the Thai baht.

The won's losses may be limited because the current-account deficit will narrow, Bank of Korea Deputy Governor Rhee Gwang-Ju said in an interview yesterday.

The deficit, the broadest measure of international trade, will shrink to $2.5 billion in the second half from $6.5 billion in the first six months, Rhee, the central bank's head of international affairs, said.

``There will be no convincing reasons that the won will depreciate further,'' said Rhee, 57. ``The won has depreciated since early March but the trend is not likely to continue for the rest of the year.''

Risk Aversion

The Philippine peso dropped for a fourth day on concern rising oil prices will add to inflation and widen the nation's trade deficit.

The peso fell to near a nine-month low before a government report on July 4 that economists said will show inflation accelerated to 10 percent in June from a year earlier, after a 9.6 percent gain in May.

``You have inflation, risk aversion, a widening trade deficit and stocks falling,'' said Catherine Tan, head of regional foreign exchange at Thomson Financial Asia. ``The story is the same across the region except that in the peso, it seems the central bank appears not so keen on intervening.''

The currency lost 0.3 percent to 45.16 per dollar in Manila, according to Tullett Prebon Plc.

The peso may drop to 47 this quarter should oil prices rise and economic growth in the U.S., the nation's biggest export market and largest source of remittances, continue to slow, Thomson's Tan said.

Trade Deficit

The Philippine trade deficit may widen to $11.5 billion this year from $8.6 billion last year on higher oil and rice prices, the central bank said last week. The nation imports almost all its oil needs and is the biggest buyer of rice.

Elsewhere, the Indonesian rupiah dropped 0.1 percent to 9,233 per dollar and Taiwan's dollar was little changed at NT$30.370. Singapore's dollar declined 0.1 percent to S$1.3625 while the Thai baht was at 33.40. Vietnam's dong was at 16,846.50 versus 16,844.50 yesterday.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.
Last Updated: July 2, 2008 00:16 EDT