Asian Currencies: Taiwan Dollar Leads Drop, Rupiah Bucks Trend

By David Yong

Aug. 1 (Bloomberg) -- Taiwan's dollar fell, leading declines in Asian currencies this week, on speculation the central bank will seek a weaker exchange rate to aid exporters on further signs of a slowdown in the U.S. economy.

The island's currency declined everyday this week, capping the worst five-day performance in more than two years, after a U.S. government report showed the world's biggest economy contracted 0.2 percent in the final quarter of 2007 and grew less than forecast in the second quarter. Indonesia's rupiah was the sole gainer in Asia outside Japan as yield premiums spurred capital inflows.

``The central bank could turn its focus to help exporters now that the U.S. outlook is not all that good,'' said Forest Chen, chief economist in Taipei at Taiwan Securities Investment Advisory. ``Foreign investors are selling stocks because higher energy and labor costs are hurting profits at exporters.''

Taiwan's dollar weakened to NT$30.66 as of 12:25 p.m. local time, according to Taipei Forex Inc. The currency dropped 0.9 percent this week, the most since July 14, 2006. Indonesia's rupiah rose 0.4 percent in the five days to 9,082, extending its winning streak since the end of May.

The rupiah advanced on speculation the central bank will raise interest rates next week to curb inflation. South Korea's won headed for a weekly loss on concern that local oil refiners were buying more dollars and as stocks fell.

Taiwan's gross domestic product may expand 4.78 percent in 2008, versus 5.72 percent in 2007, the statistics bureau said in May. Foreigners sold the equivalent of $4.03 billion more in the island's stocks than they bought in July, according to Taiwan Stock Exchange data.

Yuan Appreciation

Taiwan's currency rallied in the first half after Ma Ying- jeou won the island's presidential election in March by pledging closer economic ties with China.

China's yuan fell for a second week as traders in the forwards market scaled back expectations for the size of its advance over the next 12 months.

The Politburo, the Communist Party's top decision-making body, said July 25 that the country will focus on ``steady'' growth after the economy expanded at the slowest pace since 2005 in the second quarter.

``The government is determined to slow the appreciation to help exporters cope with weaker overseas demand,'' said Wen Li, a Beijing-based dealer at Bank of China Ltd., the country's biggest foreign-currency trader. ``The dollar's strength this week gave the central bank a chance to adjust the pace.''

The yuan fell 0.13 percent to 6.8405 per dollar in Shanghai from 6.8318 yesterday, according to the China Foreign Exchange Trade System. It slumped 0.32 percent over the five days, the biggest weekly loss since a peg against the dollar was scrapped in July 2005.

Fund Inflows

Indonesia's rupiah rose for a seventh week on speculation the central bank will raise borrowing costs on Aug. 5. Bank Indonesia lifted its benchmark reference rate for bill sales three times since May to 8.75 percent.

Consumer prices rose 11.15 percent in July from 11.03 percent in June, according to a Bloomberg News survey before a statistics bureau report today.

``The stronger rupiah is due to expectations that Bank Indonesia will raise rates again after today's inflation numbers,'' said Ho Woei Chen, an economist at United Overseas Bank, Singapore's second-largest lender. ``There are also possible bond inflows due to the high yields.''

Korea Stock Sales

Bank Indonesia Governor Boediono said in Bali today that rising overseas inflows helped strengthen the nation's currency and the central bank will use all instruments, including raising the reserve requirement for banks, to fight inflation.

Korea's won declined on concern that oil companies are buying more dollars to pay bills and on speculation global funds took money home after selling local shares. The Kospi stock index fell 1.9 percent this week.

The currency dropped to 1,014.50 per dollar from 1,012.05 yesterday, a 0.5 percent loss this week, according to Seoul Money Brokerage Services Ltd.

``We have the same pattern everyday that importers and banks are buying dollars, then the authorities emerge to ensure it's not getting out of control,'' said Jay Won, a currency trader with Korea Exchange Bank in Seoul. ``Market players are being cautious after yesterday's intervention.''

Malaysia's ringgit declined 0.2 percent to 3.2605 today and the Singapore dollar dropped 0.2 percent to S$1.3695. Vietnam's dong rose to 16,745 from 16,760 and the Philippine peso traded at 44.175 versus 44.16 yesterday.

To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net