Asian Currencies: Taiwan Dollar Leads Drop; Rupiah Bucks Trend

By David Yong

Aug. 2 (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 as the U.S. economy slows.

The island's currency capped its biggest weekly decline in two years after data showed the U.S. economy, the world's biggest, grew slower than economists forecast in the second quarter and shrank in the final three months of 2007. Indonesia's rupiah was the sole gainer among Asia's 10 most- traded currencies outside Japan as the prospect of higher interest rates drew funds.

Taiwan's 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.''

The island's dollar weakened to NT$30.645 yesterday, according to Taipei Forex Inc. The currency dropped 0.8 percent this week, the most since July 2006. Indonesia's rupiah rose 0.3 percent in the past five days to 9,096, extending a winning streak that began at the start of June.

The rupiah advanced on speculation the central bank will raise interest rates next week to curb inflation. Dollar demand from refiners contributed to a decline in South Korea's won this week, while Thailand's baht slumped as heightened political risks prompted investors to sell the nation's stocks.

Stock Sales

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

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 0.35 percent to 6.8425 per dollar in Shanghai from 6.8189 a week ago, according to the China Foreign Exchange Trade System. That's the biggest weekly drop since a peg against the dollar was scrapped in July 2005.

Traders in the forwards market scaled back expectations for the size of its advance over the next 12 months after the Politburo, the Communist Party's top decision-making body, said July 25 it 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.''

Political Jitters

The Thai baht fell yesterday to 33.53 per dollar, adding to a five-month losing streak, after the Bangkok Criminal Court on July 31 convicted the wife of former Prime Minister Thaksin Shinawatra and her brother of tax evasion. The nation's benchmark stock index fell 1 percent this week, extending its slide for the past month to 12 percent.

``The downside for the baht is coming from the political front,'' said Enrico Tanuwidjaja, an economist at Oversea- Chinese Banking Corp. in Singapore. ``Capital outflows will also play a part in determining the currency's movements. The central bank has been watching the currency.''

Possible Rate Increase

Indonesia's rupiah, which last posted a weekly decline in May, strengthened 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.

The nation's consumer prices index rose 11.9 percent from a year earlier in July, the biggest increase in 22 months, the statistics bureau reported yesterday. Economists had expected an 11.15 percent gain, a Bloomberg News survey showed.

``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.''

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

Oil Importers

Korea's won slid on concern that oil importers are buying more dollars to pay bills and on speculation global funds took money home after selling local shares. The Kospi stock index fell 1.5 percent this week.

The currency dropped to 1,014.60 per dollar for 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 weakened 0.4 percent to 3.2635, its biggest weekly loss since June 13, on concern a U.S. economic slowdown will hurt exports.

``It's a poor signal for Asian economies that rely on exports for growth,'' said Wan Suhaimi Saidi, an economist at Kenanga Investment Bank Bhd. in Kuala Lumpur. ``The trade balance and currencies could weaken'' if the gloom persists.

Elsewhere, Vietnam's dong rose 0.3 percent this week to 16,750 per dollar and the Philippine peso weakened 0.4 percent to 44.225. The Singapore dollar declined 0.8 percent to S$1.3699, near a six-week low of S$1.3709.

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