Asian Currencies: Philippine Peso Gains; Taiwan Dollar Weakens

By Aaron Pan and Karl Lester M. Yap

Aug. 6 (Bloomberg) -- The Philippine peso led gains in Asian currencies on speculation the central bank will raise borrowing costs and widen the interest-rate advantage over the U.S., making local assets more attractive.

The peso climbed to the highest in two months against the dollar after the Federal Reserve yesterday kept interest rates on hold and signaled it may delay increasing them until inflation slows. Taiwan's dollar fell for a seventh day, the longest losing streak in a year, on speculation economic growth will slow.

``Higher Philippine rates will lure funds looking for high- yield assets,'' said Catherine Tan, head of regional foreign exchange at IFR Markets in Singapore. ``The inflows will help boost the peso.''

The Philippine currency rose 0.7 percent to 43.82 per dollar as of the 4 p.m. close of trading in Manila, according to the Bankers Association of the Philippines. The currency touched 43.80, the strongest since June 4.

The Fed maintained its target rate for overnight loans between banks at 2 percent yesterday and said weak labor markets and tight credit conditions will likely weigh on economic growth.

The Philippine central bank raised the overnight borrowing rate by half a percentage point to 5.75 percent on July 17, increasing the advantage over the U.S. benchmark to 3.75 percent from 1 percent at the end of last year. Policy makers next meet to review rates on Aug. 28.

South Korea's won rose, snapping a three-day decline, on optimism demand for the nation's assets will increase as local stocks gain.

Two-Week Low

The won also climbed from a two-week low on speculation the authorities will buy the currency to cool inflation stoked by rising import prices. The benchmark Kospi index of local shares climbed 2.8 percent today, the biggest gain since July 21.

``With the stock market taking off sharply higher and foreigners turning to net buying, the mood is turning favorable for the won,'' said Jay Won, a currency dealer at Korea Exchange Bank in Seoul. ``The gains were supported by caution against intervention as well.''

The won rose 0.2 percent to 1,015.90 per dollar, according to Seoul Money Brokerage Services Ltd. Today's gains trimmed the won's loss this year to 7.9 percent, the second-worst performer of the 10 most-active regional currencies outside of Japan.

Taiwan's dollar fell on speculation the island's economic growth will slow, deterring the central bank from raising interest rates.

Export Growth

The currency earlier declined the most in two months before a report tomorrow that may show export growth slowed in July. Overseas shipments are equivalent to about half of Taiwan's gross domestic product.

``People are focusing on weaker Asian growth,'' said Callum Henderson, head of currency strategy at Standard Chartered Plc in Singapore. ``The market got ahead of itself and I'd expect dollar-Taiwan to gradually grind higher from here.''

Taiwan's dollar fell 0.1 percent to NT$30.738 against the U.S. currency, after losing 1 percent in the previous six trading days, according to Taipei Forex Inc. It earlier lost as much as 0.4 percent.

Elsewhere, Malaysia's ringgit fell 0.2 percent to 3.2770 per dollar, Singapore's dollar was little changed at S$1.3783, Indonesia's rupiah gained 0.1 percent to 9,090, and the Thai baht added 0.1 percent to 33.59. Vietnam's dong advanced 0.5 percent to 16,600.

To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Karl Lester M. Yap in Manila at kyap5@bloomberg.net.