Yuan near five-month high, Asia FX up

The Chinese yuan hit a near five-month high on Monday and other emerging Asian currencies also firmed as easing geopolitical tensions over Ukraine supported risk sentiment. The yuan started the domestic session at 6.1520 per dollar, its strongest since March 17 as the central bank set a stronger official rate and as investors increased bullish bets on recent encouraging economic data.
Indonesia's rupiah tracked its overall strength in non-deliverable forwards (NDFs) markets and firm local shares. The South Korean won and the Philippine peso rose as investors rushed to cover short positions. Asian stocks advanced on a Wall Street's rally after Russia said it had finished military exercises in southern Russia, which the United States had criticised as a provocative step amid the Ukraine crisis.
"Ironically, it is hard to find a safe place except Asia for now, so we may see more inflows to support assets here," said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul. "Some risk aversion factors such as Iraq tensions will cause some profit-taking, but they may not reverse the trend yet." The rupiah gained as most of its NDFs strengthened and Jakarta shares rose 0.8 percent.
The official Jakarta Interbank Spot Dollar Rate (JISDOR), which Indonesia's central bank launched last year in an effort to manage exchange rate fluctuations, was fixed at 11,728 rupiah per dollar, firmer than the previous session's 11,822. Some local banks bought dollars on behalf of domestic corporates, limiting the rupiah's upside. The won rose on stop-loss dollar selling after geopolitical tensions over Ukraine eased.
Traders, however, booked profits from the South Korean currency as the central bank is expected to cut its policy interest rate this week. The Bank of Korea is seen lowering the rate by 25 basis points to 2.25 percent in a policy meeting on Thursday for the first time in over a year amid pressure from the government, a Reuters poll showed. Some traders and analysts said the won has much priced in such expectations, adding the currency could extend gains after the central bank's meeting unless it signals further cuts. The rate cut views forced the won to suffer a 1.6 percent loss in July. "Investors, led by offshore names, have been excessively sensitive to a rate cut," said a foreign bank trader in Seoul.