Asian Currencies: Philippine Peso Advances, Ringgit Declines

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 U.S. dollar after the Federal Reserve yesterday kept its benchmark interest rate unchanged and signaled it may delay any increase in borrowing costs. Five of the 10 most-active Asian currencies outside of Japan rose today, three fell and two were little changed.

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

The local currency rose 0.7 percent to 43.835 per dollar as of 12:49 p.m. in Manila, according to Tullett Prebon Plc. That's the highest since June 3.

The Fed maintained its rate at 2 percent and said weak labor markets and tight credit conditions will likely weigh on economic growth.

Bangko Sentral ng Pilipinas raised the overnight borrowing rate by a half-percentage point to 5.75 percent on July 17, increasing the difference between the two nation's rates to 3.75 percent. Bangko Sentral next meets on Aug. 28 to decide on monetary policy after two increases this year.

Singapore's dollar was little changed at S$1.3784 against the U.S. currency, Indonesia's rupiah strengthened 0.1 percent to 9,065 and the Thai baht was little changed at 33.64. Taiwan's dollar lost 0.4 percent to NT$30.838 and Vietnam's dong advanced 0.5 percent to 16,600.

`Favorable Mood'

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

The won also climbed from a two-week low on speculation authorities will buy the currency to cool inflation stoked by rising import prices. Fund managers outside Korea bought more local shares than they sold for the first time in four days, according to data from the stock exchange.

``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 based in Seoul.

The currency rose 0.1 percent to 1,016.80 against the 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 performance of the 10 most-active regional currencies outside of Japan.

Crude Oil

The Kospi stock index gained as much as 2.5 percent as crude oil declined for a third day.

Crude oil for September delivery fell 0.7 percent $118.38 a barrel a barrel on the New York Mercantile Exchange. The contract touched $118 yesterday, the lowest since May 5.

Malaysia's ringgit declined for a fourth day on speculation falling crude oil prices and the Federal Reserve's decision to maintain borrowing costs will spur demand for the U.S. currency.

The ringgit headed for its longest losing run in more than seven weeks on concern a slump in the price of palm oil, of which Malaysia is the second-biggest exporter, will also restrain export growth in the months ahead.

`Conspiring Support'

``The signs are conspiring to support demand for the dollar in the short term,'' said Yeo Chin Tiong, head of treasury at OSK Investment Bank Bhd. ``Asian currencies will also have to give up some of their gains with exports likely to come off in the second half.''

The ringgit fell 0.2 percent to 3.2762 against the dollar, according to data compiled by Bloomberg. The currency may weaken to 3.30 before ending the year at about 3.10, Yeo said.

Standard Chartered Plc cut the end-September forecast for the Malaysian currency to 3.26 from an earlier estimate of 3.23, citing accelerating inflation, slowing growth and the central bank's failure to increase interest rates.

Traders see a 95 percent chance Fed policy makers will hold borrowing costs again at their Sept. 16 meeting, according to futures trading. The odds of no-change at the Oct. 29 meeting rose to 73 percent from 20 percent a week ago.

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.