Asian Currencies Drop as Worsening Recession Fans Risk Aversion

By Kim Kyoungwha and David Yong

Jan. 13 (Bloomberg) -- Indonesia’s rupiah and Malaysia’s ringgit led a decline in Asian currencies on concern a worsening global recession will sap demand for riskier investments.

The rupiah slid for a second day versus the U.S. dollar and the ringgit traded near a five-week low as regional stocks dropped the most in a month. China’s exports last month fell the most in a decade and Goldman Sachs Group Inc. forecast South Korea’s economy, Asia’s fourth largest, will shrink this year.

“Soft U.S. stocks, an increasingly negative earnings outlook, and very poor data are all feeding through to sentiment again,” said Dwyfor Evans, a macro strategist with State Street Global Markets in Hong Kong. “Investors realize there is no suggestion that the first quarter is necessarily the trough in the cycle.”

The rupiah slid 1.2 percent to 11,193 per dollar as of 3:09 p.m. in Jakarta, according to data compiled by Bloomberg. The ringgit fell as much as 0.6 percent to 3.5915, the weakest since Dec. 11.

The MSCI Asia Pacific Index of regional shares, which last year posted the biggest annual drop in its two-decade history, fell 3.1 percent, the largest decline since Dec. 12. The Standard & Poor’s 500 Index of U.S. equities slipped 2.3 percent yesterday, extending its 2009 slump to 3.7 percent.

China’s overseas sales dropped 2.8 percent from a year earlier in December, the customs bureau said on its Web site today. Shipments grew 17.2 percent for all of 2008, after climbing 25.7 percent in 2007.

Shrinking Surplus

The yen traded at 89.01 per dollar from 89.22 late yesterday in New York, when it reached 88.88, the strongest since Dec. 19. Japan’s current-account surplus shrank 66 percent from a year earlier to 581.2 billion yen ($65 billion) in November, the Ministry of Finance said in Tokyo today.

Of Asia’s 10 most-active currencies excluding the yen, six declined against the dollar today. China’s yuan, the Hong Kong dollar and Thailand’s baht were little changed, while the Korean won advanced.

The U.S. dollar will strengthen as interest rates around the world are cut, said David Woo, global head of foreign- exchange strategy at Barclays Capital, the third-biggest currency trader. The Federal Reserve has already reduced its benchmark rate to as low as zero and other currencies’ yield advantages are shrinking as their policy makers trim borrowing costs to spur spending.

Rate Cuts

Within Asia, central banks in China, India, Indonesia, the Philippines, South Korea, Taiwan and Vietnam have all lowered their key interest rates in the past month.

The rupiah fell as much as 1.9 percent to 11,270 per dollar after overseas investors sold more Indonesian stocks than they purchased yesterday, adding to net sales last week.

“The rupiah is falling in tandem with other regional currencies, which is a reflection of the weaker economic outlook,” said Sulastomo Yuriadi, head of trading at ANZ Panin Bank in Jakarta. “There’s also higher demand for the dollar from importers” at these levels, he said.

Malaysia’s ringgit fell 0.1 percent to 3.5755 per dollar. The nation’s exports in November posted their biggest drop since 2002 and industrial production had the largest decline in four years, according to government data released last week.

“The ringgit is still under selling pressure due to the short-term capital flow,” said Yeah Yeah Kim Leng, chief economist in Kuala Lumpur at RAM Holdings Bhd., the nation’s biggest ratings company. “The key is how the government will revive domestic demand in the face of the exports slowdown.”

Cooling Economy

The Korean won earlier fell as much as 2 percent to 1,385.50 per dollar, its weakest since Dec. 12, before rising 0.4 percent to 1,354. Goldman Sachs forecast the nation’s economy will shrink 1 percent this year, compared with a November projection of 1.8 percent growth, according to a report e-mailed to Bloomberg News today.

“With the economy cooling, there are worries about corporate earnings, which will hit the stock markets and then affect the foreign exchange moves,” said Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul. “A rapid drop in the won may be limited as exporters are willing to sell dollars on highs.”

Elsewhere, the Philippine peso fell 0.1 percent to 47.56 against the greenback. Singapore’s dollar lost 0.1 percent to S$1.4899 and Taiwan’s slid 0.1 percent to NT$33.265. India’s rupee declined 0.3 percent to 48.97, while the Thai baht traded at 34.96 from 34.94. Vietnam’s dong and China’s yuan were both little changed at 17,477.50 and 6.8366, respectively.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net. David Yong in Singapore at dyong@bloomberg.net.