Asian Currencies: Malaysian Ringgit Declines, Peso Advances

By Aaron Pan and David Yong

Aug. 5 (Bloomberg) -- Malaysia's ringgit fell for a third day on speculation the Federal Reserve will cite inflationary risks and keep interest rates unchanged today, boosting demand for the U.S. currency. The Philippine peso advanced.

The dollar traded near a seven-week high against the yen and one-month high against the euro after crude oil prices fell to the lowest in 13 weeks. Seven of the 10 most-active Asian currencies outside Japan, including Thailand's baht and Singapore's dollar, weakened today.

``There's renewed demand for dollars'' before the Fed decision, said Yahya Mohd Nor, head of currency trading at Affin Bank Bhd. in Kuala Lumpur. ``The market perceives there's going to be less intervention'' by the local central bank to support the ringgit, he said.

The ringgit traded at 3.2708 against the dollar as of 11:23 a.m. in Kuala Lumpur from 3.2678 yesterday, according to data compiled by Bloomberg. It earlier fell as much as 0.2 percent to 3.2733. The currency may trade between 3.2750 and 3.2805 this week, Yahya said.

The Malaysian currency headed for its longest losing streak in more than two weeks on concern policy makers may let it weaken to help exporters after the trade ministry said overseas shipments slowed in June.

Singapore's dollar fell 0.2 percent to S$1.3744 against the U.S. currency, Thailand's baht lost 0.2 percent to 33.61 and Taiwan's dollar declined 0.2 percent to NT$30.712. Vietnam's dong advanced 0.3 percent to 16,695.

Bank Indonesia

Indonesia's rupiah traded near its strongest level since March against the dollar on speculation the central bank will today increase the benchmark interest rate for the fourth time in as many months to combat inflation.

Bank Indonesia Governor Boediono said last week the central bank ``will use all instruments to fight inflation,'' which accelerated to a 22-month high of 11.9 percent in July. Higher interest rates help boost returns on rupiah-denominated assets, drawing global funds.

``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 unchanged at 9,087, according to data compiled by Bloomberg. The currency reached 9,078 on Aug. 1, the strongest since March 10, after gaining 1.4 percent in July.

`Room to Strengthen'

The currency has risen an estimated 4.3 percent on a trade- weighted basis since May when the central bank raised interest rates for the first time this year, Chan said. ``There is still room to strengthen further,'' he added, citing a target of 9,050 to the dollar without giving a timeframe.

Bank Indonesia will raise its benchmark overnight interest rate to 9 percent, from 8.75 percent, at a monetary policy meeting today, according to all but one of 22 economists surveyed by Bloomberg News. The rate was 8 percent at the end of April.

The Philippine peso gained against the dollar by the most in almost a week on speculation lower oil prices will help ease inflation.

The peso ended three days of losses as crude oil fell almost 1 percent to $120.26 a barrel in after-hours electronic trading on the New York Mercantile Exchange after dropping 3 percent yesterday.

``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 local currency rose 0.6 percent to 44.155 per dollar, according to Tullett Prebon Plc.

Preemptive Steps

Philippine inflation last month accelerated to the fastest in more than 16 years. Consumer prices rose 12.2 percent from a year earlier, the government said today.

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

The won halted a two-day loss after Kim said a consumer- price report last week ``showed the impact of higher oil prices is bigger and more serious than initially expected.'' Kim spoke today ahead of a meeting with government officials, central bankers and consumer group representatives in Gwacheon.

``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 traded at 1,017.65 against the dollar, compared with 1,017.40 yesterday, according to Seoul Money Brokerage Services Ltd.

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.

To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.