Most Asian currencies rose against the dollar on Friday supported by news of China's plans to diversify its $1 trillion foreign exchange reserves and a firmer Japanese yen.
The dollar lost ground against the yen and the euro after China's central bank said it had a clear plan to diversify its foreign exchange reserves, although it was not clear whether China would sell dollar assets.
The South Korean won rose as high as 932.40 against the dollar on Friday, brushing a six-month high after Japan's central bank chief expressed concern about a sharp unwinding of carry trades in the low-yielding currency. "Asian currencies are taking their cue from the yen and the yuan," said Philip Wee, a currency strategist at DBS Bank.
"There is a quite a bit of interest in the yen and this is supportive." China's central bank chief, Zhou Xiaochuan told Reuters on Thursday that China had a clear plan to diversify its reserves. On Friday, he said such diversification would be across different currencies and investment instruments in emerging markets.
Many currency strategists expect Beijing to face greater foreign pressure to let the yuan rise faster after the country posted a record trade surplus of $23.83 billion for October.
China's yuan rose as far as to 7.8633 per dollar on Friday, its strongest level since the July 2005 revaluation. A further rally in Asian currencies towards the end of the year is widely expected, but some analysts also fear that recent strength in regional currencies might trigger central bank intervention amid concerns about a possible export slowdown.
"Lower global rates encourage risk-taking among developed country investors, implying increased flow into emerging markets asset classes", Richard Yetsenga at HSBC said in a research note.
Yun Jin Ko, a dealer at Kookmim Bank, said she saw no sign of intervention from the Bank of Korea on Friday, but cautioned that the central bank may step in if the won rises above the 930 mark.
"I still believe 930 is our supporting line with probable intervention expected," she said. The Singapore dollar gained nearly a quarter of a percent and traded as high as 1.5565 per US dollar, close to nine-year highs around 1.5560 reached earlier in November.
The Taiwan dollar firmed to T$32.78, just off a seven-week high reached on Wednesday, while the Thai baht traded in a narrow range between 36.59 and 36.67 per dollar, near Wednesday's seven-year high of 36.56. The Indian rupee rose to about 44.35 per dollar on Friday, its strongest level in nearly eight months, before retreating to around 44.60. Dealers in India said state-banks were selling rupees for dollars in suspected intervention on behalf of the central bank.
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