Asian currencies tumble with yuan

KUALA LUMPUR: Asian currencies recorded the biggest weekly drop in four years as China’s surprise yuan devaluation deepened concerns about a slowdown in the world’s second-biggest economy.

The Malaysian ringgit and Indonesian rupiah sank to lows not seen since the 1997-98 Asian crisis and stock markets tumbled after the People’s Bank of China cut the yuan’s reference rate by 1.9% on Tuesday, triggering its biggest decline in two decades.

The move came days after data showed that Chinese exports shrank for a fifth month in July, adding pressure on exchange rates that were already depreciating amid signs that a US nterest-rate increase could be imminent.

“The primary reason for weaker Asian currencies has been the oneoff devaluation of the Chinese yuan and the subsequent depreciation,” said Jason Daw, head of Asian currency strategy at Societe Generale in Singapore. “We expect further downward pressure leading up to expected Fed tightening.”

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most active currencies excluding the yen, retreated 2.1% from Aug 7, its biggest weekly drop since September 2011. The ringgit slumped 3.8%, the yuan sank 2.8%, the rupiah fell 1.8%, while the Indian rupee weakened 2.1%. The Vietnamese dong slid 1.3% after the central bank widened the currency’s trading band on Wednesday.

The yuan recorded its steepest two-day fall since 1994 before China’s central bank calmed nerves by signalling support for the currency and amid speculation that authorities had intervened to limit its slide.

The rupiah plunged to 13,831 to the dollar on Wednesday, the weakest since July 1998, after Indonesian President Joko Widodo named a former central bank chief as economy minister in a cabinet reshuffle intended to get stalled economic growth moving.

The ringgit also sank to a 17-year low, sliding beyond 4 per dollar as investors shrugged off better-than-expected economic data to focus on the drop in oil prices that has been cutting earnings for Malaysia.

However, Malaysia’s GDP rose 4.9% in the second quarter from a year earlier, beating the consensus forecast of 4.5% from analysts surveyed by Bloomberg. The current-account surplus narrowed to 7.6 billion ringgit (US$1.9 billion) from 10 billion ringgit, but beat the forecast of 6.1 billion ringgit.

“With oil prices lower and the market looking past better secondquarter GDP and current-account numbers, the ringgit remains vulnerable,” said Khoon Goh, a strategist at Australia & New Zealand Banking Group in Singapore.

Elsewhere in Asia, the Taiwanese dollar fell 1.9% last week, the Philippine peso declined 1.1% and the Thai baht weakened 0.4%.