Asian Currencies Set for Best Week Since June on Global Stimulus

Asian currencies were poised for their biggest weekly gain since June after the Federal Reserve announced a third round of bond purchases, underpinning inflows to higher-yielding emerging-market assets.
Malaysia’s ringgit and Thailand’s baht reached four-month highs as Asian stocks headed for their best week this year. The Fed said yesterday it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month, while pledging to hold the federal funds rate near zero at least through mid-2015. The European Central Bank agreed this month to unlimited bond-buying and China said this week it will use preemptive policy to bolster growth.

“Optimism that funds will flow to Asia from the QE3 is supporting Asian currencies and stocks,” said Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp. “Asian currencies will probably see appreciation pressure for a while.”
The ringgit strengthened 1.8 percent this week to 3.0520 per dollar as of 10:42 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The baht advanced 1.2 percent to 30.84, Taiwan’s dollar gained 1.2 percent to NT$29.489 and South Korea’s won rose 0.8 percent to 1,121.15.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s most-active currencies, climbed 0.6 percent this week to 116.52, the biggest rally since the five days ended June 29. The gauge’s 60-day historical volatility dropped to 3.31 percent from 3.45 percent on Sept. 7.

Fund Inflows

The MSCI Asia Pacific Index added 3.5 percent this week, the biggest gain since December. Global funds bought $1.3 billion more Indian, South Korean and Taiwanese stocks than they sold this week, taking net purchases for those countries this year to $24.8 billion, exchange data show.

The won reached the strongest level since March after the central bank kept its seven-day repurchase rate at 3 percent yesterday, a move predicted by just one of 16 economists surveyed by Bloomberg. The rest forecast a 25 basis point cut. Indonesia and Philippines also kept borrowing costs unchanged yesterday.
China’s yuan appreciated 0.32 percent this week to 6.3225 per dollar in Shanghai, the most in seven months, according to the China Foreign Exchange System. Premier Wen Jiabao said on Sept. 11 that China has “ample strength” to use fiscal and monetary policy to boost the economy, which grew 7.6 percent last quarter, the slowest pace in more than three years.

“We believe Asian central banks like China and Singapore will ease monetary policy going into the year-end,” said Roy Teo, a currency strategist at ABN Amro Private Bank in Singapore. “Currency strength could impede export recovery so there’s a need to balance that.”
Elsewhere, the Philippine peso advanced 0.4 percent this week to 41.515 per dollar. India’s rupee was little changed at 55.415 through yesterday, Indonesia’s rupiah rose 0.2 percent to 9,572 and Vietnam’s dong was steady at 20,850.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net; Yumi Teso in Bangkok at yteso1@bloomberg.net.