Sustained portfolio inflows underpinned most Asian currencies on Wednesday, led by a jump in the South Korean won due to a local stock market rally and expectations of a weaker dollar fanned by US elections.
The Thai baht was an exception to the trend as it retreated from Tuesday's high of 36.57 per dollar, its strongest in more than seven years, after the Bank of Thailand moved to curb baht speculation. The modest rises in the other Asian currencies raised hopes that firm tone would continue to the year-end. Stock rallies that have pushed key indexes in Asia to record highs this week have fuelled the gains in regional currencies.
James Malcolm, a currency strategist at Deutsche Bank, said Southeast Asian currencies had outperformed but others, particularly the won and the Taiwan dollar, would now start to catch up. "We are probably at a point of inflection when North Asian currencies will start to take the lead," he said.
"I think Asian currencies will rally into the end of the year and I see more clients interested in rebuilding positions now. Fundamentally, they are more undervalued currencies." Projections of the outcome of Tuesday's mid-term US congressional election showed Democrats swept Rebublicans from power in the House of Representatives and moved close to taking control of the Senate.
Though most analysts expect the outcome to have little sustained impact on the dollar, some argue that Democratic control of the House of Representatives could be negative for the currency as it may lead to a rise in protectionist policies or to political deadlock that could slow reforms.
The Singapore dollar was traded around 1.5610/15 per US dollar, off an early high of 1.5596. The South Korean won was Asia's biggest riser, gaining about 0.35 percent to levels near 935 per dollar. China's yuan strengthened to as high as 7.8666 against the dollar, its highest level since the 2005 revaluation.
The Taiwan dollar hit a seven-week high of 32.762 per US dollar due to a firming yen and a rally in local stocks. It subsequently lost some of its gains.
Underscoring official concerns about the strength in the currencies, Hur Kyung-Wook, a senior South Korean finance ministry official, told reporters that the won was excessively strong compared to the country's economic fundamentals. Dealers said the comments, which came as the won hit its highest in six months against the dollar, indicated the Korean authorities could intervene if the won appreciated further.
"They are trying not to intervene in the market as far as possible, but when it breaks 930, there may be intervention," said Yun Jin Ko, a dealer at Kookmim Bank. "But they are watching right now."
The Bank of Thailand announced measures on Tuesday aimed at discouraging foreign investors from speculating on the baht, the fastest-rising Asian currency against the dollar this year. It said it had asked banks to cooperate by not issuing or selling bills of exchange to non-residents.
It also asked foreigners with baht proceeds from issuing bonds to swap the baht into foreign currencies with domestic financial institutions if they wanted to use the funds in other countries. The measures take effect from November 15.
Comments
Comments are closed.