Foreign Reserves in Asia Drop after Strong U.S. Jobs Report

Nov. 14 – Currencies across Asia declined following the release of a surprisingly positive U.S. jobs report. In October, according to the U.S. Bureau of Labor Statistics, the country added 204,000 jobs – much higher than the 120,000 that analysts had initially expected.

Most analysts had expected that the government shutdown in the U.S. would have had a greater effect on the economy; many now see the new numbers as a sign of the underlying strength of the U.S. economy.

As a result of this good news for the U.S., many analysts again see the possibility of the U.S. Federal Reserve to begin tapering off its economic stimulus program. PNC Senior Economist Gus Faucher has told reporters that the recent economic results could mean major monetary changes lie ahead. This belief has triggered large outflows of foreign currency from Asia.

Credit Agricole CIB said in a client note that “the stronger-than-expected U.S. labor market report will increase fears of portfolio capital outflow from [emerging markets], and will weigh on current account deficit currencies in particular.”

Previous worries of U.S. Fed tapering also caused large amounts of money to flow out of Asia.

The Indian rupee and the Indonesian rupiah led the foreign reserve declines in Asia. These two countries in particular are greatly affected by any shift in U.S. Fed policy due to their large current account deficits. India in particular is predicted to have suffered an increase in inflation levels last month, which has only compounded the decline in the value of the rupee.

The Japanese yen declined slightly after the announcement, fueling worries about the future success of “Abenomics.”

As a result of a spate of selling by hedge funds and interbank speculators, Malaysia’s ringgit saw significant weakening.

Although Thailand’s baht suffered an initial decline from the U.S. Fed news, the currency saw a slight rebound due to an easing of political tensions related to the dropping of a proposed amnesty bill.

The South Korean won also saw a momentary decline before climbing back into positive territory, yet foreign investors were readying themselves for their biggest sell-off in 17 weeks.

The Singapore and Taiwanese dollars closed in positive territory after declining on the U.S. Fed news.

Investors are carefully watching the markets in Asia and the U.S. as they try to guess what the future will hold and where the profit potential lies. According to Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul, “it looks better to sell Asian currencies on rallies, especially in the fourth quarter, on tapering concerns.”

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