Asian Currencies Post Monthly Loss as Global Recession Deepens

By Kim Kyoungwha and David Yong

Jan. 31 (Bloomberg) -- South Korea’s won led a decline in Asian currencies this month as a deepening global recession hurt regional exports and sapped demand for emerging-market assets.

The Korean currency dropped 8.7 percent versus the dollar, its worst start to a year since at least 1991, as the government announced the steepest drop in gross domestic product in a decade. Asian shares tumbled yesterday after reports showed U.S. orders for durable goods and new home sales slumped in December, while Japanese manufacturers cut production at a record pace.

“The data suggests recession in Asia intensified in December and probably got significantly uglier this quarter,” said Kit Wei Zheng, an economist in Singapore at Citigroup Inc. “There’s room for downside surprises for Asian currencies. Risk appetite is still going to be quite poor.”

The won traded at 1,379.50 per dollar in Seoul versus 1,259.50 at end-December, according to Seoul Money Brokerages Ltd. Malaysia’s ringgit slumped 4.3 percent over the same period to 3.6077, its worst January performance in a decade, according to data compiled by Bloomberg News.

The MSCI Asia Pacific Index of regional equities declined 1.7 percent yesterday, extending its January slide to 7.1 percent. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, was poised for a 2.4 percent drop.

U.S. durable goods orders fell for a fifth month in December while new home sales reached a record low, according to Commerce Department reports on Jan. 29. Japan said yesterday industrial production fell by a record 9.6 percent last month from November. The two nations are the world’s biggest economies.

Dollar Shortage

South Korea’s won traded near a seven-week low of 1,399.10 on Jan. 28 on concern tighter global credit markets and sliding exports will curb the supply of dollars the nation needs to meet payments on imports and foreign debt.

Asia’s fourth-largest economy contracted by a larger-than- expected 5.6 percent in the fourth quarter, the most since the Asian financial crisis a decade earlier, the Bank of Korea said on Jan. 22.

The central bank yesterday reported a current-account deficit of $6.41 billion for 2008, the first shortfall in 11 years, as higher oil prices and a weaker won drove up the cost of imported goods. “More active measures” may be used to improve to ease the credit crunch, Governor Lee Seong Tae said.

Demand for Dollars

“There’s a general feeling that demand for dollars is outweighing supplies given concern that January may see a trade deficit,” said Jeff Kim, a currency dealer with Korea Exchange Bank in Seoul. “The decline in stocks is also unnerving currency players.”

The Philippine peso declined 0.4 percent yesterday to 47.38 per dollar after the central bank slashed interest rates and signaled more cuts to help spur economic growth. The currency rose 0.3 percent in January, making it the sole gainer among the 10 most-traded regional currencies excluding the yen.

Bangko Sentral ng Pilipinas on Jan. 29 cut its overnight borrowing rate by half a percentage point to 5 percent, the second reduction in six weeks. Governor Amando Tetangco told reporters that cooling inflation provides the central bank “room for further easing.”

Sliding Support

“The more you cut rates, the more you take the fundamental support for the currency,” said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. “Even if inflation is falling, you need some premium for holding the peso. If they overdo the cutting, the peso could get hurt.”

Indonesia’s rupiah fell 1.1 percent to 11,440 yesterday, capping a 4.7 percent slide for the month. Overseas investors sold a net $128 million worth of Indonesian stocks in the four weeks of January, contributing to this month’s 1.7 percent drop in the Jakarta Composite Index.

“The global stock market kept declining as well as the Jakarta stock exchange and this is spurring fund outflows,” said Lindawati Susanto, head of currency trading at PT Bank Resona Perdania in Jakarta. “In addition, there is month-end corporate demand for dollars.”

Elsewhere, the Singapore dollar fell 4.2 percent for the month to S$1.5076 versus the greenback, the Thai baht dropped 0.7 percent to 34.94 and India’s rupee declined 0.2 percent to 48.875 per dollar.

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