Investors flee further from Asian currencies

PUBLISHED : Saturday, 24 September, 2011, 12:00am
UPDATED : Saturday, 24 September, 2011, 12:00am


Asian currencies, including Hong Kong's growing pool of yuan, fell further yesterday as investors sought the safety of the US dollar amid fears a global economic slump is imminent.

Gold, which soared to record highs in recent months, was also sold off as investors chased the greenback, the main beneficiary of this week's plan by the Federal Reserve to boost the troubled US economy.

Central banks from South Korea to Indonesia intervened to prop up their currencies, a sharp turnaround from recent concerns that their currencies were too strong and hurting exports.

Major Asian currencies, including the Singapore dollar, have been under pressure since the beginning of this month as mounting risk aversion sparked withdrawals of capital out of the region. The Australian dollar, which had soared above parity to the US dollar, this week touched its lowest since December last year.

The JP Morgan Asia Dollar Index, which measures the 10 most traded Asian currencies, fell to a one-year low on Thursday but rose slightly yesterday following Korea's pledge to defend its currency. The won has lost 12 per cent of its value in the past three weeks.

'Recent foreign exchange market movements in one direction were excessive,' its central bank said.

Korea 'agreed to take necessary action to smooth [won movement]'.

Traders said Korean authorities offered to sell US$5 billion for won.

The dollar is now the top safehaven pick after the Fed's decision to swap US$400 billion of short-term debt with long-term treasuries to push down borrowing costs.

Brazil, which cut rates last month and spent 28 months trying to sell the real to protect exporters, took steps on Thursday to prop up its currency for the first time since 2009. It sold US$2.75 billion in currency swaps to boost the real, which fell 16 per cent against the dollar this month. Indonesia also stepped in to prop up the rupiah, buying 1.74 trillion rupiah (HK$1.51 billion) of long-dated government bonds. Thailand said it had not intervened to support the baht.

'Over the past two years, it was about buying Asian currencies,' said Claudio Cocchis, a managing director at French investment bank Societe Generale. 'Now it's about getting out [of Asian currencies].'

Cocchis said Asian currencies could further depreciate if market conditions did not improve.

In New York, gold fell as much as 2.9 per cent to US$1,691 an ounce, its lowest since August 8. The metal is down 6.7 per cent this week after hitting a record US$1,923.70 on September 6.

The MSCI Asia Pacific Index has tumbled 16.14 per cent this year and 18.16 per cent since last month when volatility spiked.

According to US research company EPFR Global, emerging markets equity funds posted outflows for the seventh consecutive week, taking cumulative outflows since the beginning of last month to US$16.7 billion.

The Hang Seng Index has lost 20 per cent since the start of the year after this week's fall of 6.58 per cent - its biggest weekly drop in nearly three years.

Offshore trade in the yuan also turned volatile yesterday, surging to 6.56 against the US dollar before steadying at 6.495 in the afternoon.

'A lot of funds are taking profits in the yuan,' said Ronald Ip, of HSBC Global Markets. 'Confidence is very shaky and there's a bit of panic.'