The Thai baht hit its highest since the start of the 1997-98 Asian financial crises, as sustained inflows on Tuesday gave it the biggest gains among emerging Asian currencies at a time investors stayed wary about Cyprus. The baht also found support from short-covering and the central bank reiterated that the currency's strength is not a concern.
The Malaysian ringgit rose on similar position adjustments and exporters' demand. The South Korean won also gained as exporters' bids prompted interbank speculators to cover short positions. Such appreciation among currencies came as risk sentiment recovered partially, supporting regional stocks, after news on Monday that the Eurogroup decided to give Cyprus more flexibility over a contentious bank levy that is part of the bailout conditions.
"The Cyprus issue will affect European peripherals more, while in Asia if there is any impact, it would be through the risk sentiment channel," said Frances Cheung, senior strategist at Credit Agricole CIB in Hong Kong. Saktiandi Supaat, head of FX research for Maybank in Singapore, said the won, the ringgit and the Singapore dollar are seen as more susceptible because they are more sensitive to risk aversion.
"With the European crisis having flared up again, China's recovery being questioned and the Japanese yen remaining weak, you will see Asia ex-Japan currencies remaining under some pressure in the immediate term before they can find a more sustained floor," said Callum Henderson, global head of FX research with Standard Chartered in Singapore.
The baht rose as much as 0.8 percent to 29.30 per dollar, its strongest in 16 years, according to Thomson Reuters data, on inflows and short-covering. "The baht is truly amazing. Stocks and bonds are bullish there. The baht has more room to appreciate, although the trend may slow down when it gets around 29.00 (per dollar)," said a European bank trader in Singapore.
"Cyprus is unlikely to have a big impact there," said the trader. The baht is seen as technically overbought with the dollar/baht's 14-day relative strength index at 20.9, well below the 30-threshold, making it ripe for profit taking, according to some traders. The baht has been the best performing emerging Asian currencies this year with a 4.3 percent gain against the dollar, Thomson Reuters data showed.
The Thai currency has enjoyed inflows as investors ride on strong economic fundamentals and seek higher yields. Japanese manufacturers, such as car makers, also are increasing their Thai investments, taking advantage of the Bank of Japan's monetary policy easing. In January, Toyota Motor Corp's said it would invest 12 billion baht ($406.09 million), while Honda Motor said in February it would spend more than 2 billion baht for a new assembly plant. The ringgit gained as interbank speculators cleared dollar-long positions on exporters' demand for the Malaysian currency for settlements. Investors stayed cautious over the Cyprus situation, but some traders were looking to buy the ringgit on dips.
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