The Indonesian rupiah hit an eight-week high, the Indian rupee surged to a 9-year peak and other Asian high-yielders rose on Thursday, extending the rally sparked by a large US interest rate cut. The dollar fell broadly, hitting record lows below $1.4 versus the euro and tumbling against the Swiss franc, Aussie dollar and other currencies.
In emerging Asia, the Korean won rose 0.4 percent to near 922 per dollar. The rupiah rose as far as 9,143 per dollar. It has gained 2.8 percent from Monday's lows near 9,400 per dollar. The rupee Asia's top gainer this year, rose to 39.88 per dollar, last traded in May 1998. The peso and Malaysian ringgit other high-yielders in Asia, also rose. The peso hit 45.33 per dollar, its strongest in just over a month.
"There is very little elbow room for Asian central banks to be cutting rates, which is why I think the Asian regional block will also strengthen against the US dollar, with the exception of the yen," said Fortis Bank strategist Joseph Tan.
Inflationary pressures, which could intensify due to high oil prices, strong economic growth and rising asset prices across Asia meant that monetary authorities in the region could not cut rates that easily, he said.
The Federal Reserve cut the fed funds rate to 4.75 percent from 5.25 percent on Tuesday, which has boosted interest in stocks, commodities and other risky assets. Risk appetite seems to have returned on the belief that the rate cut will shore up the US economy and shield it from the troubles in the housing market. But many market participants were unwilling to lower their threshold for risk, preferring to wait it out until US financial companies have finished reporting earnings this month.
Fed Chairman Ben Bernanke is scheduled to testify on problems in the subprime mortgage sector before a congressional committee on Thursday, and the dollar's lack of movement showed traders wanted to hear his views before taking on fresh positions.
The yen which weakened on Wednesday as traders resumed their interest in carry trades funded by the cheap Japanese currency, managed light gains to 115.50 per dollar. A trader in Jakarta said the rupiah's gains were driven by expectations that Indonesia's 8.25 percent policy rate will be cut again, and foreigners were therefore buying domestic bonds.
Economists differ on the need for another rate cut in Indonesia, given the rupiah's earlier weakness and signs of rising inflation, but some say the Fed's rate cut gives Bank Indonesia leeway for a 14th rate cut in this series while still maintaining a reasonable rate advantage over the dollar.
J.P. Morgan Chase said in a note that speculative buying in Asia was still low but a reduction in foreign selling of regional equities could result in another rally in Asian currencies. Its analysts said they would look to buy Asian currencies ahead of a likely fall in the dollar but would keep positions relatively light because the news flow could make for volatile markets still. They recommended the rupiah and Singapore dollar as currencies that would benefit from rising risk appetite and broad softness in the US dollar.
The Taiwan dollar edged up on Thursday as exporters sold US dollars but investors traded cautiously ahead of the central bank's quarterly board meeting at which it announced a rate increase. The Taiwan dollar closed at T$33.066 to the US dollar, up from the previous day's close of T$33.090. The won was last quoted at 922.9/3.3 per dollar, compared to its previous closing bid of 926.3.
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