The Taiwan dollar jumped 0.7 percent to its strongest level in six months on Friday and the Singapore dollar neared a five-year high, leading an Asian currency surge on the back of concerns about the US economy. Asian currencies had rallied on Thursday, extending October's gains, as US President George W. Bush's re-election ended weeks of uncertainty about the closely contested race.
That swung the market's focus to the fact that the US dollar will be weighed down by the yawning US trade and budget deficits and prompted traders to pick the Asian currencies most likely to benefit from strong domestic demand and robust economic fundamentals, analysts said.
These included the Taiwan dollar, the Singapore dollar and the Indian rupee analysts said.
The central banks in these countries were more confident of a sustained economic recovery, said Bhanu Baweja, a currency strategist at UBS in Singapore.
The Singapore dollar rose to around 1.6530, its highest since January 2000, and the Taiwan dollar reached a high of 33.025.
Indeed, traders bet that regional central banks would allow their currencies to appreciate to check inflation.
"Some governments are taking a view that a little bit is not bad on the inflation front," said Ben Rudd, an investment strategist at ABN Amro Bank in Hong Kong.
European Central Bank President Jean-Claude Trichet said on Thursday that he expects a number of Asian currencies to appreciate in a progressive and orderly manner.
Speculation that China may let its tightly controlled currency appreciate contributed to the Asian currency rally, Rudd said.
Japan, South Korea and other Asian countries, which compete with China for exports, would be more keen to let their currencies strengthen if China revalued the yuan, analysts said.
The premium on 1-year yuan non-deliverable forwards derivatives used by offshore investors to hedge or speculate on the currency, approached 3,500 points, a level seen in April and pricing in a 4.4 percent appreciation in the currency.
Top officials from China's central bank were quoted by the Chinese media on Thursday as saying they had made fundamental preparations to make the yuan exchange rate more flexible.
Rudd said China's currency policy was unlikely to change this year.
The Indian rupee was firm after approaching a five-month high on Thursday. India's central bank unexpectedly raised its benchmark interest rate in October, citing inflation concerns.
The Thai baht climbed to its highest in more than three months. Thailand raised its benchmark interest rate by 25 basis points last month.
The South Korean won rose to a fresh four-year closing high on the back of a broader rally among Asian currencies.
Traders said some state-run banks bought dollars to check gains in the won.
A Bank of Korea official told Reuters an "imbalance" in sentiment in the currency market was undesirable, adding the bank was closely monitoring the foreign exchange market.
The Philippine peso lagged the market, staying little changed around 56.36 to 56.41 a dollar.
Rafael Buenaventura, governor of the Philippine central bank, said on Friday there was no need for the bank to adjust its overnight borrowing rates despite a rise in inflation to 7.1 percent in the year through October.
Credit rating agencies have said they may downgrade the country if it fails to curb a widening budget deficit.
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