Lira crisis hits Asian currencies as investors flee to safety

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BENGALURU (Aug 13): Asian currencies were battered on Monday with the Indian rupee touching a record low as the ongoing crisis in Turkey spilled over to emerging markets and investors flocked to safe-haven assets.

The Turkish lira tumbled to a record low, weakening as much as 13.34%, over concerns about Turkish President Tayyip Erdogan's rigid control over the economy and a worsening diplomatic rift with the United States.

"If investors continue to be concerned about the events in Turkey, and they likely will be, we could see more pain in store when it comes to risk appetite in the week ahead," Jameel Ahmad, global head of currency strategy & market research at FXTM wrote in a note.

Investors fear the sell-off in the lira could have a ripple effect in global financial markets with the euro, the South African rand and Mexico's peso already on the receiving end from Turkey's crisis.

Erdogan, who has called himself the "enemy of interest rates," wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing.

Worries about the exposure of European banks to crisis-hit Turkey prompted investors to bid up safe havens such as the US dollar and Japanese yen.

The dollar index added 0.07% at 96.423 while the Yen strengthened 0.58% by 0535 GMT

"Today's market is a little bit more about recalibrating the investment agenda. Investors want to reduce their position. Kind of like, once bitten, twice shy," said Taye Shim, head of research at Jakarta-based Mirae Asset Sekuritas.

The Indonesian rupiah plunged nearly 1% on to its weakest since October 2015, after data showed on Friday the country's current account deficit, a major concern for global emerging market investors, swelled in the second quarter to the largest in nearly four years.

Indonesia's central bank is intervening to defend the rupiah, a senior official said on Monday.

"The bank intervening in both the FX and bond market can only smooth excessive movement in the rupiah not change its direction," said Gao Qi, FX Strategist(EM Asia)at Scotiabank.

China's yuan slid 0.5%, in line with regional peers.

"A worsening yuan is like pouring oil on a fire," said Mirae's Shim.

The People's Bank of China (PBOC) lowered the yuan midpoint rate to 6.8629 per dollar, its weakest level since May 31, 2017, which was 0.3% softer than Friday's fix of 6.8395.

Last week, the yuan fell for the ninth straight week, the longest weekly losing streak since 1994. It has fallen about 9% against the dollar since the end of March.

South Korea's won and the Taiwan dollar weakened 0.48% and 0.32% respectively.

THE INDIAN RUPEE

India's rupee, which has been the region's worst performing currency so far this year, weakened more than 1% hours before consumer inflation data for July was due.

A Reuters poll found that July inflation was expected to be 4.51% versus a five-month high of 5.0% hit in June.

Inflation remains a central concern for India, with rising crude oil prices adding to imported inflation. Moreover, recent erratic Indian monsoons have dimmed the outlook for winter-harvested crops in a largely agriculture-reliant economy.

The following table shows rates for Asian currencies against the dollar at 0600 GMT.

CURRENCIES VS US DOLLAR

Currency                     Latest bid  Previous day  % move
Japan yen                    110.240     110.92        +0.62
Sing dlr                     1.376       1.3733        -0.18
Taiwan dlr                   30.807      30.708        -0.32
Korean won                   1134.400    1128.9        -0.48
Peso                         53.330      53.135        -0.37
Rupiah                       14610.000   14470         -0.96
Rupee                        69.455      68.83         -0.91
Ringgit                      4.090       4.083         -0.17
Yuan                         6.875       6.8440        -0.46

Change so far in 2018

Currency                     Latest bid  End 2017      % move
Japan yen                    110.240     112.67        +2.20
Sing dlr                     1.376       1.3373        -2.80
Taiwan dlr                   30.807      29.848        -3.11
Korean won                   1134.400    1070.50       -5.63
Peso                         53.330      49.93         -6.38
Rupiah                       14610.000   13565         -7.15
Rupee                        69.455      63.87         -8.04
Ringgit                      4.090       4.0440        -1.12
Yuan                         6.875       6.5069        -5.36