Asian Currencies Fall as European Debt Crisis Curbs Risk-Taking

By webadmin on 09:57 am May 23, 2011
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Yumi Teso & David Yong

Asian currencies weakened, led by South Korea’s won and Singapore’s dollar, as Europe’s worsening sovereign-debt crisis reduced demand for higher-yielding emerging-market assets.

The MSCI Asia-Pacific Index of regional shares dropped to the lowest level since March after Fitch Ratings cut Greece’s credit rating by three levels on May 20, citing the challenge of fiscal and structural reform needed to secure the state’s solvency. Standard and Poor’s lowered Italy’s rating outlook to negative on the same day.

“The concern is the potential domino effect from the rating actions on the weaker states in Europe,” said Suresh Kumar Ramanathan, a foreign-exchange strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. “This is creating some uncertainty and triggering dollar buying.”

The Bloomberg-JPMorgan Asia Dollar Index dropped 0.2 percent to 118.02 as of 10:20 a.m. in Hong Kong. The won slumped 0.7 percent to 1,090.05 against the dollar and Singapore’s currency fell 0.5 percent to S$1.2423, according to data compiled by Bloomberg. Malaysia’s ringgit slid 0.5 percent to 3.0335.

European finance ministers suggested the idea of extending Greece’s debt-repayment schedule after last year’s 110 billion- euro ($115 billion) bailout failed to ease the crisis. An extension of maturities would constitute a default, Fitch said.

Fitch lowered Greece’s long-term rating to B+, four notches below investment grade. Global funds sold $1.7 billion more South Korean, Taiwanese and Thai equities than they bought last week, according to exchange data.

Stock Sales
Taiwan’s dollar declined, touching a four-day low, after overseas investors sold a net $340 million of local shares.

“Problems from Europe damped risk appetite today,” said Tarsicio Tong, a Taipei-based currency trader at the Union Bank of Taiwan. “Taiwan’s dollar is stuck at this NT$28.900 level. We’ve seen more foreign funds selling Taiwan assets.”

The Taiwan dollar fell 0.2 percent to NT$28.850 against its U.S. counterpart, according to Taipei Forex Inc. The currency touched NT$28.890 earlier, the weakest level since May 17.

The Philippine peso dropped, snapping four days of gains. The government may report a budget surplus for April today as spending was still “below” program, Budget Undersecretary Laura Pascua said in a mobile-phone text message on May 20, citing preliminary data.
Thai GDP

“The peso will largely depend on the developments in Europe,” said Joey Cuyegkeng, an economist at ING Groep NV in Manila. “People are a bit concerned about the risk in Greece.”
The peso weakened 0.4 percent to 43.29, according to prices from inter-dealer broker Tullett Prebon Plc.

Thailand’s baht fell for a third day, dropping 0.2 percent to 30.37 per dollar, before a report today that economists predicted in a Bloomberg News survey will show gross domestic product rose 2.2 percent in the first quarter from the previous three months, when it increased 1.2 percent. The data are due at 9:30 a.m. local time.

Elsewhere, the Indonesian rupiah slipped 0.2 percent to 8,563 per dollar and China’s yuan fell 0.06  percent to 6.4966.