Asian currencies in steepest drop in 10 months as growth slows

[JAKARTA] Asian currencies weakened the most in 10 months in July as slowing economic growth and the prospect of higher US interest rates spurred outflows.

South Korea's won led declines, falling 4.7 per cent in its biggest monthly drop since 2011. Thailand's baht lost 4.2 per cent and Taiwan's dollar depreciated 1.9 percent. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region's 10 major currencies excluding Japan's yen, fell 1.4 percent.

Taiwanese gross domestic product increased by the least since 2012 last quarter, a report showed on Friday, and expansion in South Korea was the slowest in more than two years. A gauge of Chinese manufacturing fell to a 15-month low in July, fueling concern a slowdown in Asia's largest economy hasn't bottomed out yet.

"There isn't a single good story coming out of Asia," said Nizam Idris, head of currency and fixed-income strategy at Macquarie Bank Ltd in Singapore. "Growth is decelerating, exports are weak and reforms have disappointed. Asia is likely to remain pretty downbeat for some time unless you see a big turnaround in China or improving trade numbers." Foreign funds sold a net US$4 billion of South Korean, Taiwanese and Thai shares in July, data compiled by Bloomberg show. Of eight major Asian stock markets, India was the only one that didn't experience outflows.

The Federal Open Market Committee said this week that the US job market is solid, dropping the modifier "somewhat," which boosted bets the US will start raising interest rates this year. The first 25-basis point increase will probably happen in September, Macquarie's Idris said.

China's yuan fell 0.14 per cent in July, its biggest monthly loss since February, after the State Council said last week that the nation will make the currency more flexible. That spurred speculation the trading band might be widened. Authorities have been struggling to cope with an equities rout that saw the Shanghai Composite Index plunge almost 30 per cent from a mid- June peak.

"The stock rout added depreciation pressure on the yuan as it hurts market sentiment and has spillover effects on all asset classes," said Tommy Xie, an economist at Oversea-Chinese Banking Corp in Singapore.

The ringgit fell 1.4 per cent this month and reached a 16- year low as a political scandal linked to a probe into the finances of debt-ridden state investment company 1Malaysia Development Bhd. damaged sentiment toward the country.

Elsewhere in Asia, Indonesia's rupiah weakened 1.5 per cent in July and the Philippine peso dropped 1.4 per cent. India's rupee declined 0.8 per cent and Vietnam's dong was little changed.

BLOOMBERG