Asian currencies rose against a broadly weak dollar on Friday, led by the high-yielding Indonesian rupiah, as investors bought riskier assets amid expectations of further US interest rate cuts.
Federal Reserve Chairman Ben Bernanke pledged on Thursday to support US economic growth, saying the central bank "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks". The remarks fuelled expectations of another aggressive interest rate cut next month, which would boost the relative appeal of Asian assets.
The rupiah rose as far as 9,145 per dollar, up just over 1 percent from late Asian trade on Thursday to its highest in three months, as foreigners flocked to local markets.
"It looks like the carry trade is back on track," said a trader in Jakarta, referring to risky investments in high-yielding assets funded by selling low-yielding currencies. Investors have turned bullish on the rupiah, which has gained about 2.5 percent versus the dollar so far this year after a 4 percent drop in 2007.
Indonesia's benchmark interest rate stands at 8 percent - the highest in Asia - compared to the Fed funds rate of just 3 percent. The Thai baht hit a decade high at 32.50 per dollar in onshore trading, up 0.8 percent, as investors expect the new government to lift capital controls imposed in late 2006 to curb currency appreciation.
The baht is Asia's top performing currency so far this year, having gained about 3.5 percent versus the dollar. The Philippine peso rose as far as 40.75 per dollar, up 0.6 percent. "Risk appetite is back and the market is clearly still focused on inflation concerns in Southeast Asia," said Thomas Harr, currency strategist at Standard Chartered Bank.
"Currencies of Southeast Asia will continue to outperform," he said. Asian share markets recovered from early losses, which followed a slide in US stocks on Thursday. The Singapore dollar hit a decade high at 1.4119 to the US dollar as Finance Minister Tharman Shanmugaratnam pledged to adjust taxes in the budget to keep the economy competitive. The Taiwan dollar eased to 31.75 to the US dollar from a 21-month high of 31.57 struck on Thursday.
It has gained 2 percent versus the dollar so far this year amid optimism that Ma Ying-jeou of the opposition KMT party will win the presidential election in March, which could help reduce tensions with China and revive the economy.
But Morgan Stanley analyst Stewart Newnham cautioned that the currency rally may lose steam after March, given the island's exposure to a global slowdown and more investment into China.