Asian currencies slide as Fed, China concerns deter risk taking

[SINGAPORE] Asian currencies fell, led by Indonesia's rupiah and South Korea's won, as concern China's economic slowdown is worsening and the prospect of higher US interest rates deterred risk taking.

Malaysia's ringgit and the rupiah both dropped to their lowest levels since 1998 as stocks slumped worldwide ahead of the Fed's Sept 16-17 meeting. Thailand's baht declined to its lowest level since March 2009.

Jobs data in the US Wednesday boosted the case for the Federal Reserve to raise borrowing costs. Standard & Poor's cut Brazil's sovereign rating to junk and Chinese producer prices tumbled the most in six years, underscoring weakness in the world's second-largest economy. China will report data on retail sales and factory output Sunday. New Zealand cut interest rates for the third time in three months, adding to a global wave of monetary easing as policy makers look to revive growth.

"There's a lot of uncertainty in the market and the Chinese data will most likely disappoint," said Andy Ji, a Singapore- based currency strategist at Commonwealth Bank of Australia. "Brazil's downgrade and the rate cut in New Zealand highlight the challenges for the global economy. The Fed meeting adds to the uncertainty and dollar strength."

The won fell for the first time in three days, losing 0.4 per cent. Overseas funds have pared holdings of Korean equities this week, taking outflows for the quarter to US$6.4 billion. The Bank of Korea will keep its benchmark interest rate at 1.5 per cent at a meeting on Friday, according to 16 of 18 economists surveyed by Bloomberg.

"The won is weaker because of the global market volatility and concern about emerging markets," said Jeon Seung Ji, a Seoul-based currency analyst at Samsung Futures Inc. "It's also under pressure as foreign investors are selling Korean stocks."

Odds that the Fed will pull the trigger on rate hikes at next week's meeting are 28 per cent, with the chance of an increase in December now at 58.7 per cent, according to Fed funds futures tracked by Bloomberg.

The ringgit weakened 0.1 per cent after dropping as much as 1.2 per cent earlier to 4.3798 a dollar, the lowest level since January 1998 when it reached a record 4.8850. Indonesia's rupiah fell 0.5 per cent and India's rupee slipped 0.1 per cent.

China's yuan closed little changed after Premier Li Keqiang said he wants to avoid a currency war as he sought to soothe global concern about the nation's devaluation of the yuan and its slowing economy, which he said is operating in a reasonable range even as it faces "downward pressure." China has been "wrongly criticized" for its management of the currency and doesn't want to use depreciation to boost exports, Li said Wednesday at the World Economic Forum's Summer Davos meeting in Dalian, China.

Elsewhere in Asia, the Philippine peso and Vietnam's dong were steady and Taiwan's dollar declined 0.3 per cent.

BLOOMBERG