Most Asian currencies nudged higher on Wednesday, lifted by strong gains in equity markets and a rally in the yen, but familiar trading ranges remained. Equity markets in Taiwan and South Korea rose to six-month highs, while India's main 30-share index hit a record high.
Against this backdrop, the Taiwan dollar rose almost 0.25 percent to about 32.80 per dollar, while the South Korean won set a 1-1/2-week high at about 933.50 per dollar. The Indian rupee also climbed to its highest in about 1-1/2 weeks at around 44.70 per dollar from 44.87 at Tuesday's close.
"Today is an equities story," said Odie Lee, a trader at Hypo und Vereinsbank in Singapore. "Stocks are trying to break new highs, so there are flows, but currencies are still rangy." Expectations of large dollar inflows helped underpin the won.
"There is still a little bit of interest in the won," said Claudio Piron, J.P. Morgan's currency strategist. The reason for that, he said, was market expectations that Korea Electric Power Corp (KEPCO) would convert into won the funds it is raising through five-year convertible bonds launched on Tuesday. KEPCO is borrowing up to $1 billion in euro and yen.
In addition, Piron said, market talk that US fund Lone Star may have to reverse a hedging transaction on its $7.3 billion deal to sell Korea Exchange Bank (KEB) was supporting the won. The Financial Times reported on Wednesday that Lone Star was close to terminating this sale to Kookmin Bank because of a prosecutors' investigation into allegations KEB's financial data had been understated in the past.
The yen firmed about 0.5 percent in thin trade as investors closed long dollar positions ahead of holidays in Japan and the United States on Thursday. Economic data has been fickle, making it difficult for markets to form a view about the dollar and US rates. This has contributed to range-bound trade in the currency markets.
The Thai baht hovered around 36.60 per dollar, as it has done in the last two sessions, the Indonesian rupiah was up slightly at about 9,130 to the dollar and the Singapore dollar was little changed at 1.5570 to the US dollar. Some dealers and analysts expected demand for Asian currencies to pick up heading into the year-end.
"December could be a bit more active," said Lee. "The dollar should continue to weaken until we see a rebound in the housing data." HSBC currency strategist Richard Yetsenga said the Philippine peso, in particular, could extend the year's gains.
He said the currency had handled the introduction of a tiered money market system in early November well and this may reflect the strength of remittance flows from overseas Filipino workers. "Despite much talk about remittance seasonality at other times in the year, the only statistically robust month of seasonality we can find is December," Yetsenga said in a note. "December remittances are typically 20 percent higher than November's." The peso has risen about 6.7 percent versus the dollar so far in 2006, compared with gains of more than 12 percent in the baht and just over 8 percent in the won.