Tuesday, August 16, 2011

Asian Currencies Strengthen as Global Stocks Rally Encourages Risk-Taking

Asian currencies strengthened, led by South Korea’s won and theSingapore dollar, as a rally in global stocks fanned demand for higher-yielding assets.
All of Asia’s 10 most-used currencies excluding the yen advanced against the dollar as the MSCI Asia-Pacific Index of shares headed for its biggest two-day gain since April. The yuan climbed to a 17-year high after the People’s Bank of China raised its reference rate for the currency and a China Securities Journal front-page editorial said conditions are ripe for the currency’s trading band to be widened.
The won strengthened 0.9 percent from its Aug. 12 close to 1,070.15 per dollar as of 12 p.m. in Seoul, the biggest jump since May, according to data compiled by Bloomberg. South Korea’s financial markets were closed yesterday for a holiday. The Singapore dollar rose 0.4 percent today to S$1.2022 and the ringgit advanced 0.3 percent to 2.9721, climbing for the sixth day in a row. Thailand’s baht gained 0.2 percent to 29.84.
“A rebound in global stocks eased risk aversion in the market and when investors’ risk appetite improves, funds tend to move into higher-yielding currencies,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo.
The MSCI Asia-Pacific Index rose 0.7 percent, building on a 2 percent surge yesterday. The Standard & Poor’s 500 Index rose 2.2 percent yesterday in New York, capping its biggest three-day gain since 2009.
A Federal Reserve report today may show industrial production rose 0.5 percent in July after a 0.2 percent gain in June, according to a Bloomberg News survey. Japan’s economy shrank at an annualized 1.3 percent in the second quarter, the government said yesterday. That was less than the 2.5 percent drop estimated in a Bloomberg News survey of economists.

Yuan Band

China’s yuan gained 0.06 percent to 6.3864 per dollar in Shanghai and touched 6.3861, the strongest level since the country unified official and market exchange rates at the end of 1993. The People’s Bank of China fixed its reference rate at 6.3925 today, the highest level since July 2005. The currency is allowed to trade as much as 0.5 percent on either side of the central bank’s daily fixing.
Widening the yuan trading band and increasing exchange-rate flexibility will help damp one-way appreciation expectations and deter capital inflows, the China Securities Journal wrote today in a front-page editorial. The band was last widened, from 0.3 percent, in May 2007.

Korean Trade

South Korea’s won touched a one-week high of 1,067.90 per dollar and the Kospi index of shares rallied 3.9 percent, the biggest gain in four months.
“The won is expected to rise, reflecting overseas stock market gains on Friday and yesterday,” said Lee Woong Ho, a Seoul based currency dealer with Korea Exchange Bank. “Currency gains will depend on how much the Kospi index reacts to global market movements.”
The prospect of free-trade agreements with the world’s two biggest economies may brighten the outlook for South Korea. President Lee Myung Bak said yesterday an accord with the U.S. is key to maintaining growth amid unprecedented economic uncertainty and needs to be ratified soon. Trade Minister Kim Jong Hoon said on Aug. 13 that preliminary talks with China regarding a similar type of deal were underway.
Elsewhere, Indonesia’s rupiah rose 0.2 percent to 8,526 per dollar, Taiwan dollar’s advanced 0.3 percent to NT$28.870 and the Philippine peso gained 0.1 percent to 42.345.

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