The Korean won and the Thai baht outperformed on Friday as renewed declines in the US dollar, talk of a Chinese currency policy change and softer oil prices buoyed Asia's currencies. The Korean won was up half a percent at 1,105 per dollar as markets overcame their wariness over recent talk of Bank of Korea intervention and focused on Thursday's unexpected rate cut. The baht hit 40.48, crossing to the firmer side of 40.50 for the first time since May as bullishness overcame the fear of intervention.
Traders cited heavy selling of dollars by big fund managers, through a couple of large foreign banks, in holiday-thinned trade. Many centres in Asia were closed on Thursday and are again shut on Monday for holidays.
"We heard some British bank is selling dollars for regionals from London, and one American name in Singapore is also doing the same," said a Bangkok-based trader. "There seems to be some fund behind this selling."
While the baht seemed to be catching up with last week's rises in regional currencies, others in Asia extended gains.
The Taiwan dollar rose to the firmer side of 33 a dollar and the Singapore dollar stayed in a 1.6520-1.6545 range some distance away from last week's near 5-year highs.
The regionals were buoyed in part by the Japanese yen's rally back to Wednesday's levels near 106 a dollar, shrugging off data showing disappointing GDP growth in the July-September quarter.
Even the euro was slightly higher after being forced to consolidate on Thursday after the US rate rise and comments from European officials expressing dismay over the currency's rapid rise.
Economists at Westpac Bank said the strength in Asian currencies was driven more by speculative flows and hedging by domestic players than by portfolio inflows.
Despite some worries in the market about regional dollar-buying intervention and caution ahead of an upcoming Asia-Pacific Economic Co-operation (APEC) summit and a Group of Twenty officials' meeting, the outlook for Asian currencies was bullish, Westpac said.
"While we have seen some signs of concern with currency strength this week, we have also seen the BOK surprise the market with a 25 basis point rate cut arguably afforded by the positive implications of currency strength in terms of containing inflation," Westpac said.
"Oil prices are off their highs, which had been a weight on Asian FX," Westpac said, adding that talk in the press of some adjustment in the Chinese yuan peg had also picked up.
Chinese official media quoted a senior lawmaker as saying China should keep the yuan basically stable while reforming its currency system. A government economist was also quoted as saying the yuan should be gradually made more flexible.
Chinese yuan non-deliverable forwards moved to price in a higher premium on the yuan. One-year NDFs were quoted at 3,900 points, pricing in a five percent appreciation in the yuan in a year. The yuan is effectively pegged around 8.28 per US dollar. Elsewhere, the possibility of a ratings downgrade weighed on the Philippine peso and holidays next week kept the Indonesian rupiah from matching the regional uptrend.
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