Asian Currencies: Taiwan Dollar Falls on Growth; Yuan Declines

By David Yong and Judy Chen

July 31 (Bloomberg) -- Taiwan's dollar fell for a third day, leading losses in Asian currencies, as demand waned on concern slower economic growth in the island will spur investors to sell local assets.

The currency fell by the most in more than two months after overseas investors sold more local stocks than they bought for the past three days, according to the Taiwan Stock Exchange. China's yuan declined, paring its monthly gain to the smallest since March 2007, on speculation the government prefers a slower pace of appreciation to help exporters.

``We expect growth in Taiwan to decelerate in the second half because of slowing domestic demand,'' said Cheng Cheng- mount, chief economist at Citibank Taiwan Ltd. in Taipei. ``Foreign investors have also recently sold down stocks quite heavily and these factors could explain the currency weakness.''

Taiwan's dollar fell 0.4 percent to NT$30.638 against the U.S. currency as of 12:56 p.m. local time, according to Taipei Forex Inc. The local dollar headed for its biggest monthly loss since January 2007. The yuan weakened 0.1 percent to 6.8325, according to the China Foreign Exchange Trade System, paring this month's advance to 0.3 percent.

``The market got ahead of itself going long Taiwan on closer ties with China,'' said Callum Henderson, head of currency strategy at Standard Chartered Bank in Singapore. ``While that makes a lot of sense in the long run, in the short term, people are focusing on weaker Asian growth.''

Slower Growth

Taiwan's economic growth may slow to 3.8 percent in the second half this year, from 6.1 percent in the first quarter and an estimated 5 percent in the second quarter, Cheng said.

Traders in the forwards market have pared their bets on the extent of the yuan's gains in the next 12 months. Non- deliverable forwards contracts show it will reach an implied rate of 6.5240 per dollar in the next year, compared with a prediction of 6.4445 at the end of June. The contracts are agreements in which assets are bought and sold at current prices for future delivery.

``Investors have reduced expectations for how far the yuan will rise this year,'' said Chen Yue, a Shenzhen-based currency trader at China Merchants Bank Co., the nation's sixth-largest lender. ``The appreciation has added to difficulties for the economy.''

The People's Bank of China didn't reiterate its pledge to ``increase the exchange rate's flexibility'' in a July 27 statement following a central bank meeting.

Thailand's baht fell 0.2 percent to 33.54 per dollar, extending its losing streak to five months on speculation overseas investors will sell the nation's stocks because of heightened political risks.

Tax Evasion

A Bangkok Criminal Court today convicted the wife of former Prime Minister Thaksin Shinawatra and her brother for tax evasion, the first in a series of lawsuits against his family since he was ousted in 2006.

``The political situation will continue to worsen,'' said Han Sia Yeo, a Singapore-based strategist at Bank of America Corp. ``We expect the baht to weaken from here.''

South Korea's won rose for the first time in three days on speculation the central bank bought the currency to stem its slide. Central banks intervene in currency markets by arranging sales or purchases of foreign exchange.

The won has declined 7.4 percent this year, the second-worst performer of the 10 most-active Asian currencies outside of Japan. Confidence among manufacturers for August fell to the lowest level in more than three years, a Bank of Korea report showed today.

Upside Capped

``The market received a number of orders suspected to be coming from the authorities as the dollar keeps rising,'' said Ko Yun Jin, a currency dealer at Kookmin Bank in Seoul. ``The dollar's upside appears to be capped now.''

The won climbed 0.2 percent to 1,011.90 per dollar, according to Seoul Money Brokerage Services Ltd. It is headed for a 3.3 percent gain this month, the biggest advance since January 2006.

Elsewhere, Malaysia's ringgit was little changed at 3.2630 per dollar, the Singapore dollar gained 0.1 percent to S$1.3685 and Vietnam's dong was unchanged at 16,760. The Philippines peso dropped 0.2 percent to 44.24 against the dollar.

To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net.