Asian Currencies Fall, Led by Ringgit, on Spreading Swine Flu

By Shanthy Nambiar

April 27 (Bloomberg) -- The Malaysian ringgit and the Singapore dollar fell the most among Asian currencies on concern spreading swine flu will further damp global economic growth and investor sentiment in emerging-market assets.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, dropped the most in a week and Asian stocks slid as funds based abroad sought safety in the U.S. currency and Treasuries. The ringgit also declined on bets the central bank will cut its benchmark interest rate to a record low this week in an effort to halt a slump in exports and industrial production.

“The swine flu is affecting sentiment and keeping the dollar bid,” said Carl Rajoo, an economist at Forecast Singapore Pte Ltd. “It’s causing a bit of a risk aversion. Sentiment is less optimistic. The markets may be positioning for the week. The risk of a global pandemic is severe.”

The ringgit snapped a two-day gain, weakening 0.5 percent to 3.6030 per dollar as of 12:37 p.m. in Kuala Lumpur from 3.5855 on April 24, according to data compiled by Bloomberg. Singapore’s dollar fell 0.3 percent to S$1.4939 and the Thai baht slipped 0.2 percent to 35.44.

U.S. President Barack Obama’s administration declared a public-health emergency and released stockpiles of medicine because of a growing number of swine flu cases in the U.S. and Mexico. Infections were also confirmed in Canada, and suspected in Brazil, Europe and New Zealand, sending the respective currencies lower. Japan, Malaysia and Singapore said they are screening passengers at checkpoints for fever, while Hong Kong raised its swine-flu response level to “serious” from “alert.”

Malaysia Rate Outlook

The MSCI Asia Pacific Index of regional stocks dropped 0.7 percent, reversing an earlier gain. The ICE Dollar Index, which tracks the currency against those of six major trading partners, climbed 0.5 percent, while 10-year Treasury notes rose the most in a week.

Malaysia’s central bank will probably reduce its overnight rate to 1.75 percent from 2 percent on April 29, according to the median forecast of 13 economists in a Bloomberg News survey.

Declines in exports and industrial production and slowing inflation have fueled analysts’ bets that Bank Negara Malaysia will add to three rate reductions since October.

Malaysia’s exports have slumped every month since September as major markets in Singapore, the U.S. and Japan remained in recession, forcing manufacturers to cut back production in the past two quarters.

U.S. Contraction

A U.S. government report on April 29 will show the world’s largest economy probably contracted 4.7 percent in the first quarter, after shrinking 6.3 percent in the final three months of 2008, according to the median forecast of 60 economists in a Bloomberg survey.

Asian currencies rose earlier on signs the global economic slump may be reaching a floor before heightened concerns that swine flu will spread triggered a reversal.

Korea’s won was little changed as Goldman Sachs Group Inc. and Deutsche Bank AG pared projections for this year’s drop in gross domestic product. China’s economy is performing “better- than-expected” during the financial crisis, Sing Tao Daily reported today, citing Vice Premier Wang Qishan, brightening the outlook for Asian exports.

‘Start of Recovery’

“We are beginning to see the start of a recovery in Asian currencies and we may have seen the worst of Asian data,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. “But nothing moves in a straight line and we have to remember that we are still in a global recession.”

The won traded at 1,343.15 per dollar in Seoul, according to data compiled by Bloomberg. It earlier reached 1,327.80, the highest level since April 20.

Korea’s GDP increased 0.1 percent in the first quarter from the previous three months, when it shrank 5.1 percent, the central bank said on April 24. Deutsche Bank said the economy will contract 2.9 percent this year compared with an earlier estimate of 5 percent. Goldman upgraded its forecasts to a drop in GDP of 3 percent versus 4.5 percent.

Reports from Korea this week include exports, industrial production and the current-account balance.

Taiwan’s dollar was little changed, paring a 0.2 percent gain that was driven by improving investor sentiment over the state of U.S. banks and accords with China. The Federal Reserve said most U.S. banks given stress tests have adequate capital.

Taiwan, China Ties

Taiwan’s dollar reached NT$33.631 against the U.S. currency, the strongest level since April 15, before trading at NT$33.690 from NT$33.711 on April 24.

The island signed agreements with the mainland over the weekend to further strengthen financial ties and cross-strait travel. The two sides agreed to more than double weekly direct flights to 270 from the 108 agreed in November, Chiang Pin-kung, head of Taiwan’s Straits Exchange Foundation, said yesterday.

“The agreements show ongoing momentum in terms of bolstering cross-strait ties; that’s obviously positive for the Taiwan dollar,” said Dwyfor Evans, a Hong Kong-based strategist at State Street Global Markets. “It looks as if many of the underlying assumptions of the stress tests are somewhat generous, which skews it towards a favorable outcome, which could lend some risk appetite to the market.”

Elsewhere, the Philippine peso fell 0.3 percent to 48.555 per dollar in Manila, according to Tullett Prebon Plc. Indonesia’s rupiah dropped 0.2 percent to 10,845 and the Vietnamese dong was little changed at 17,776. China’s yuan traded at 6.8258 from 6.8273 at the end of last week.

To contact the reporter on this story: Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net