Asian Currencies Drop, Led by Rupee, as Euro Crisis Persists.

Asian currencies declined this week, led by the Indian rupee and South Korea's won on concern the funding crisis in Europe will slow the global economic recovery and demand for exports.

Tensions on the Korean peninsula plagued the won, the region's worst-performing currency this year, after a North Korean diplomat in Geneva warned "a war may break out at any moment" with its southern neighbor. Central banks in Indonesia and the Philippines kept interest rates at record lows, judging inflation isn't yet a threat. The Group of 20 gathered for a weekend meeting in South Korea to discuss the debt crisis and the euro's decline.

"There's been a very strong correlation between Asian currencies and the euro and that is why we haven't seen a rise in Asian currencies this week," said Tetsuo Yoshikoshi, a senior economist at Sumitomo Mitsui Banking Corp. in Singapore. "Fiscal problems in Europe have been and will be the big theme as people are thinking about the health of European banks."

India's rupee dropped 0.6 percent this week to 46.6250 per dollar as of 9:55 a.m. in Mumbai, and is down 0.3 percent this year, according to data compiled by Bloomberg. The won fell 0.3 percent to 1,198.25 in Seoul, taking its loss for the year to 2.8 percent.

Korea's currency was little changed today after declining as much as 1.2 percent. North Korea's deputy ambassador to the UN offices in Geneva, Ri Jang Gon, said the South's accusation that the communist nation sank one of its warships was a fabrication. South Korean President Lee Myung Bak will urge Pyongyang to forfeit its nuclear arsenal at a security conference in Singapore, the Wall Street Journal reported today.

'Bit Muted'

The won's "reaction is a bit muted," said Gerrard Katz, head of foreign-exchange trading at Standard Chartered Plc in Hong Kong. "But the market is not disregarding it. There's also clearly been intervention by the Bank of Korea to dampen volatility in the won."

India's rupee posted a weekly loss as overseas investors pared investment in the nation's assets amid a surge in global financial-market volatility.

The currency added to last month's 4.3 percent slide, the biggest since February 2009, as funds based abroad cut stockholdings by $2.1 billion from a record-high $79.4 billion reached on April 30. The rupee's one-month implied volatility rate, a gauge of expected price swings, touched a 15-month high of 18.5 percent on May 26.

"The rupee is the most vulnerable currency in Asia as it is reliant on support from equity inflows," said Daniel Hui, a currency strategist at HSBC Holdings Plc in Hong Kong. "The Indian rupee is our least favorite" currency in Asia.

Malaysia Exports

Losses in Asian currencies were limited this week as reports from the U.S. showed manufacturing expanded and home sales rose, providing some optimism that the world's biggest economy is strengthening. A Labor Department report today may show employers added 536,000 workers in May, the most since 1983, according to the median forecast of economists surveyed by Bloomberg News.

Malaysia's ringgit bucked the trend and headed for a second weekly advance before a government report today that will probably show the nation's exports climbed at the fastest pace in almost 12 years in April.

"The strong economic data is a feel-good factor for Asian currencies, and we see good bids for the ringgit at current levels," said D. Sivadass, a currency forwards trader at EON Bank Bhd. in Kuala Lumpur. "U.S. growth signals are encouraging, especially the recovery in the job market."

Rates Held

The ringgit traded at 3.2720 per dollar, gaining 0.7 percent from a week ago, according to data compiled by Bloomberg. The currency, which was little changed from yesterday, has appreciated 2.9 percent since reaching a two-month low on May 26.

Overseas shipments climbed 38 percent in April from a year earlier, according to the median forecast in a Bloomberg survey.

Thailand's baht head for its fourth weekly decline and traded near an 11-week low as Bank of Thailand Deputy Governor Bandid Nijathaworn said yesterday expansion in Southeast Asia's second-largest economy will slow this quarter as protests hurt the tourism industry.

"Some people are afraid that the European debt crisis will get worse, while the Thai economy may be affected by the political turmoil last month," said Paisarn Lertkowit, a currency trader at Bangkok Bank Pcl, the country's biggest lender.

'Bullish Fundamentals'

The baht was little changed today at 32.58 per dollar and was down 0.1 percent from a week ago.

Indonesia's rupiah and the Philippine peso declined this week after central banks left interest rates on hold to support economic growth amid the European crisis. Bank Indonesia kept its policy rate at 6.5 percent and Bangko Sentral ng Pilipinas's stayed at 4 percent.

The rupiah fell 0.4 percent to 9,190 per dollar, according to data compiled by Bloomberg and has slumped 1 percent this quarter. The peso dropped 0.5 percent to 46.432 and is down 2.6 percent since March 31. Singapore's currency dropped 0.2 percent to S$1.4039.

"Global concerns are still eclipsing the very bullish fundamental stories in Asia," said Daniel Hui, a currency strategist at HSBC Holdings Plc in Hong Kong.



Source :- sfgate.com