The delay for aid in Greece and budget issues in the United States prompted a fall in Asian currency markets. On Friday, President Barack Obama started to negotiate a solution to the fiscal cliff with Democratic and Republican leaders. The fiscal cliff encompasses a total of $607 billion dollars in spending cuts and increases in taxes.
After hitting a 19-year high this week, the Chinese yuan lost some of its gains by the end of the week. It most recently hit 6.2356 versus the dollar after reaching a high of 6.2252 on November 14. The Philippine peso posted a 0.7 loss for the day and its largest weekly decline in three months. Losses for the peso were led by lower levels of remittances by Philippine citizens living abroad. One United States dollar currently fetches 41.335 pesos.
The South Korean won dropped 0.4 percent to a level of 1,093.23 versus the greenback while the Thai baht retreated 0.4 percent to 30.76. In Malaysia, the ringgit fell by 0.3 percent to 3.0729. Despite the weakened ringgit, the Malaysian economy reported that it had advanced 5.2 percent from the same time a year earlier. Analysts had previously forecasted that the economy would see a 4.8 percent increase. In the preceding three months, the Malaysian economy advanced by 5.4 percent.
In Singapore, the third quarter GDP showed growth shrank 5.9 percent from the second quarter. A Bloomberg survey showed that investors had expected just a 2.9 percent contraction. Government officials in Singapore stated on Friday that they expected GDP to grow just one to three percent in 2013. If this prediction holds true, Singapore would have its slowest growth pace for three years.
Taiwan’s dollar retreated by 0.42 percent to hit 29.272 versus the United States dollar. The rupee in India dropped by 0.8 since last week to end at 55.178 while the Vietnamese dong held steady at 20,858. Tin Indonesia, the rupiah fell by 0.14 percent to a level of 9,633.
Chinese Inflows to Increase
China is planning to expand the Renminbi Qualified Foreign Institutional Investor Program in the coming weeks. The quota will rise from 70 billion yuan to 200 billion yuan. The chairman of the securities regulator, Guo Shuging, released a statement saying this on November 11. The growth in inflows of capital will help to prop up the Chinese economy and will help the yuan to remain at a high level.
Canadian Dollar Drops
Canada’s currency, nicknamed the loonie, retreated to its lowest level versus the United States dollar since August of this year. It traded at its narrowest range this week since March. On November 23, the head of Statistics Canada is expected to report that consumer prices slowed for the month of October. If this happens, the Bank of Canada will not need to raise interest rates. Canada’s finance minister, Jim Flaherty announced that he would delay balancing the budget due to the turmoil in the global economy.
The loonie dropped to C$1.0057 on Friday and ended at C$1.0012. Canadian ten-year bond yields dropped by 0.02 percentage points to a level of 1.69 percent this week. Currently, the price of a 2.75 percent bond that is set to mature in June 2022 advanced by 18 cents to a level of $109.27 Canadian dollars. Canadian securities saw foreign net purchases nearly double in size for September from their previous total in August. In August, purchases were at C7.56 billion. By September, foreign net purchases were at an estimated $13.9 billion.
Foreign Exchange Swaps Exempted
The United States Treasury decided this week to exempt foreign exchange swaps and forwards from new financial regulations. These regulations were designed following the recession to prevent the 2008 financial crisis from occurring again. Many investors had expected this move and eagerly waited for the announcement. The delay in announcing the decision was caused by the presidential elections. Some congressional aides stated that waiting to make the announcement enabled them to avoid the fury of left-leaning groups who decried the new exemption.
Treasury officials stated that additional measures were not needed in the foreign exchange markets because current practices already worked to limit risk. One advocacy group, Better Markets, has already denounced the decision and called it an unjustified loophole. The chief of Better Markets, Dennis Kelleher, stated that it was essentially an early Christmas gift to Wall Street.
Japanese Yen Falls
The Bank of Japan is expected to announce an interest rate decision in the coming week. In response, the yen dropped from its one-month peak of 81.45. Next week, the Bank of Japan is expected by many analysts to maintain its current monetary policy.
In December, the government of Japan will be holding snap elections to select new leaders. This decision has caused many investors to be wary of potential risks. The opposition leader, Shinzo Abe, will be challenging current Prime Minister Yoshihiko Noda at the elections. Shinzo Abe called on the Bank of Japan to adopt unlimited monetary easing policies. Abe also wants the Japanese central bank to adopt fundamental targets for inflation and employment. This news was met with dismay by investors and increases the amount of risk surrounding the yen until the snap elections are over.
Indian Reserves Down
For the week ending on November 9, Indian foreign exchange reserves dropped by $781.5 million. On the week ending November 2, the reserves fell by $950.3 million to a level of $294.34. The largest component of forex reserves is foreign currency assets (FCA). Data released by the Reserve Bank of India showed that FCAs dropped by $751.8 billion to a level of $258.70.
Gold reserves in India remained roughly the same at $28.18 billion. Special drawing rights (SDRs) fell by $19.6 billion to a level of $4.40 billion. At the same time, reserves held at the International Monetary Fund rose by $10.1 million to end the week at $2.25 billion. In the previous week, SDRS declined by $4.1 million to $4.42 billion. Reserves at the International Monetary Fund dropped by $3.2 million to $2.26 billion on the week ending on November 2.