Asian Currencies Decline, Led by Thai Baht, as Dollar Rallies

By Aaron Pan and Shanthy Nambiar

Aug. 5 (Bloomberg) -- Asian currencies declined, led by Thailand's baht, on speculation the Federal Reserve will cite inflation risks and keep interest rates unchanged today, boosting demand for the U.S. currency.

The dollar rallied to a six-week high against the euro as futures contracts showed Fed policy makers may increase borrowing costs by year-end after keeping rates on hold today. Seven out of the 10 most-active Asian currencies outside of Japan fell today.

``We are seeing some demand from foreign banks for the dollar,'' helping push the baht lower, said Apichart Suratanasurang, a foreign-exchange trader at BankThai Pcl in Bangkok. ``The dollar is rebounding.''

The baht fell 0.2 percent to 33.61 against the dollar as of 4:30 p.m. in Bangkok, according to data compiled by Bloomberg. It earlier declined to 33.65, the weakest since July 15.

Overseas investors sold 790 million baht ($23.5 million) more Thai stocks than they bought yesterday, according to data from the stock exchange.

Singapore's dollar fell 0.4 percent to S$1.3781 against the U.S. currency, Malaysia's ringgit lost 0.1 percent to 3.2725 and Taiwan's dollar declined 0.2 percent to NT$30.721. Vietnam's dong advanced 0.3 percent to 16,690.

South Korea's won fell to the lowest in two weeks as global funds dumped local stocks and importers bought the dollar to pay for imports.

`Preemptive Steps'

The won's weakness was limited after Vice Finance Minister Kim Dong Soo said the government will take ``preemptive steps'' to prevent price gains, spurring speculation of intervention.

``Market players are increasingly mindful of what the government is worried about,'' said Roh Sang Chil, a currency dealer with Kookmin Bank in Seoul. ``Still, demand for the dollar is high due to foreign stock sales and importer deals.''

The currency closed at 1,017.90 against the dollar, compared with 1,017.40 yesterday, according to Seoul Money Brokerage Services Ltd. The won has slumped 8.4 percent this year, the second-worst performer among the 10 most-active regional currencies.

Record oil and food costs pushed up annual consumer prices by 5.9 percent in July, the biggest gain since November 1998, according to a government report on Aug. 1. Central banks intervene in currency markets by arranging sales and purchase of foreign exchange.

Rate Increase

Indonesia's rupiah climbed to the strongest in almost five months after the central bank raised its benchmark interest rate for a fourth time in as many months to tame the fastest inflation in almost two years.

Bank Indonesia Governor Boediono increased the policy rate by a quarter-percentage point to 9 percent, the bank said in a statement in Jakarta today. That matched the forecast of 20 of 22 economists in a Bloomberg News survey.

``I'm still very bullish on the rupiah and I expect them to remain hawkish on their policy stance, even after today's meeting,'' said Craig Chan, a currency strategist at Lehman Brothers Holdings Inc. in Singapore.

The rupiah traded at 9,075 versus the dollar, the highest level since March 10, versus 9,087 yesterday, according to data compiled by Bloomberg.

``The high risk of inflationary pressures was the main consideration'' in raising rates, Bank Indonesia said in a statement today. Monetary policy is also equipped ``with instruments such as the control of rupiah volatility and the absorption of market liquidity through market operations,'' the central bank said.

Oil Helps Peso

The Philippine peso gained the most in almost two weeks on speculation lower oil prices will slow inflation in the coming months.

The peso was the best performer of the 10 most-traded currencies in Asia outside Japan as crude oil fell for a second day, extending its decline to almost 19 percent from a record $147.27 a barrel on July 11. Inflation accelerated to the fastest in 16 years in July due to costlier oil and food, a government report showed today.

``A tapering off of inflationary pressures will favor the local currency and fund flows,'' said Lito Biacora, vice president for treasury at Bank of the Philippine Islands in Manila. Inflation may still climb but the ``degree of increase may not be as much if oil stabilizes at $120 a barrel.''

The peso rose 0.6 percent to 44.135 versus the dollar, according to Tullett Prebon Plc. The gain was the biggest since July 23, when it surged 1.3 percent.

To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net.