Rupiah leads Asia currencies lower this week amid global selloff

[KUALA LUMPUR/JAKARTA] Asian currencies headed for the biggest weekly drop in a month, led by Indonesia's rupiah and South Korea's won, amid a global selloff in equities and debt.

About US$2 trillion has been wiped from stocks and bonds worldwide since the start of last week on China's slowdown, uncertainty over the timing of a US interest-rate increase and the prospect of Greece exiting the euro. The rupiah was set for its biggest five-day drop in two months after Indonesia's government and the central bank clashed over monetary policy.

"We've seen a very sharp escalation of the selloff of bonds in developed markets and that has raised volatility," said Mirza Baig, the Singapore-based head of foreign exchange and interest-rate strategy at BNP Paribas SA. "The impact we've seen for most of Asia is a spillover from the sharp increase in volatility in European bond markets."

The Bloomberg-JPMorgan Asia Dollar Index dropped 0.3 per cent this week as of 10:20 am in Hong Kong. The rupiah weakened 1.5 per cent, South Korea's won retreated 1.3 per cent, India's rupee declined 1.3 per cent and Malaysia's ringgit fell 1 per cent.

Federal Reserve Chair Janet Yellen said Wednesday that "long-term interest rates are at very low levels" and yields "could see a sharp jump" when the Fed tightens policy.

April non-farm payrolls data due Friday may provide clues on the timing of the first Fed rate increase since 2006. The employment report is forecast to show hiring picked up last month following figures released Thursday that indicated average jobless claims in the past month were at a 15-year low.

China's exports missed estimates to fall for a second month in April and a manufacturing gauge also trailed forecasts.

The rupiah touched a seven-week low Friday after Indonesian Vice President Jusuf Kalla said Thursday the central bank will gradually cut borrowing costs, while Bank Indonesia Governor Agus Martowardojo said afterward that he would keep "a tight monetary stance," to anchor inflation expectations.

"Foreign investors will see a rate cut as an easing signal and that will hit the rupiah," said Heru Irvansyah, an economist at PT BNI Securities in Jakarta. "From the domestic side, companies want economic growth to be revived, but we think rates don't have to be cut to spur high-quality growth once the government implements its work plan."

The won was poised for its first weekly drop in two months as South Korea's benchmark share index fell for a second week and foreign funds turned net sellers from Thursday.

"Nervous foreign investors sought the safety of the dollar amid turmoil in the stock and bond markets," said Hong Seok Chan, a Seoul-based currency analyst at Daishin Economy Research Institute.

Elsewhere in Asia, Thailand's baht fell 1 per cent this week, the Philippine peso weakened 0.4 per cent and Vietnam's dong dropped 0.5 per cent after the central bank devalued the currency for the second time this year. Taiwan's dollar and China's yuan depreciated 0.1 per cent.

BLOOMBERG