The Indonesian rupiah rose almost 1 percent to a one-year high on Thursday, extending this week's sharp rally amid signs that the central bank will not stand in the way of currency strength.
The Philippine peso, one of Asia's other high-yielding currencies, continued its bull run to hit a fresh six-year peak, while upbeat sentiment towards Malaysian shares helped push the ringgit to its strongest level in nine years.
Still, the rupiah hogged the spotlight. It has racked up gains of more than 3.5 percent in the past week against a backdrop of strong inflows into stock and bond markets. The rupiah rose as far as 8,735 per dollar, its highest level in a year.
Investor sentiment towards the currency remained bullish, despite cautious remarks from a senior central bank official. Aslim Tadjuddin, a central bank deputy governor, said on Thursday that the rupiah faces a risk of instability since recent gains were partly driven by short-term capital inflows.
But Tadjuddin added that a stronger rupiah was good for the economy. Central bank governor Burhanuddin Abdullah said on Wednesday that the central bank was comfortable with the rupiah trading between 8,500 and 9,500 per dollar, while his senior deputy Miranda Goeltom said the currency could gain further. "There does seem to be a greater tolerance for currency strength than there was before," said Callum Henderson, head of currency strategy at Standard Chartered.
"Letting the currency appreciate would help contain inflation and allow them (the central bank) to cut rates." Bank Indonesia lowered interest rates on Tuesday and said there was room for a further cut, boosting the appeal of the rupiah as traders bet on further inflows into local assets.
Indonesia's key stock index set a record high on Thursday. A pick up in investor risk appetite has lifted Asian currencies, with the rupiah, peso, Indian rupee and ringgit benefiting the most. The peso rose as far as 47.15 per dollar on Thursday, its highest level in just over six years, and taking its gains so far this year to about 4 percent.
This week's rally comes amid talk that Standard & Poor's could upgrade its stable outlook for Philippine credit ratings when it releases the outcome of a sovereign debt review, most likely after congressional and local elections on Monday. "Mostly everyone is still selling (dollars) on the rumours about S&P," said a trader in Manila. "The peso is also being dragged up with the rupiah." He added that demand for dollars from corporates and oil companies prevented the peso from extended gains to 47 per dollar for now.
In Kuala Lumpur, dealers said upbeat sentiment towards the equity market and economy in general were behind the ringgit's move to a nine-year high at 3.4000 per dollar. "Stocks are strong and there is positive sentiment towards not just Malaysia's economy but the rest of Asia too, Indonesia, Singapore," said a trader. "We have hit the 3.4 psychological level so there is some profit taking."
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