Asian currencies rose on Friday as the dollar tumbled across the board on concerns over its outlook after the Federal Reserve announced this week it would to buy US government debt to help spur the ailing economy. The South Korean won, Thai baht, Singapore dollar and Malaysian ringgit are on track for their biggest weekly gains since December, boosted by the dollars broad weakness as well as tentative signs of stability in the global financial system.
The Thai baht gapped up at opening and hit a one-month high at 35.32 per dollar, up 0.4 percent from Thursdays close, as investors who were long on the dollar shed their positions to cut further losses. "Some players were caught long," said a Singapore-based trader.
The baht has gained 1.7 percent this week, its sharpest weekly rise since mid-December. The Singapore dollar gained a fifth of a percent to 1.5085 per dollar, set for a weekly gain of about 2 percent, the biggest weekly rise in three months.
Asian currencies shrugged off weaker regional stocks as investors dumped the dollar that was heading for its biggest weekly drop against a basket of major currencies in 24 years. Analysts said the Feds bold move to buy $300 billion of long-dated government debt and vastly expand its balance sheet could lead to an oversupply of the dollar and threaten its status as the worlds top reserve currency.
Meanwhile, the Indonesian rupiah gained 0.6 percent to 11,850 per dollar as foreigners moved to buy local debt. In the offshore market, one-year dollar/rupiah non-deliverable forwards fell to 13,025 and narrowed the spread with onshore forwards to 0.6 percent from 1.3 percent on Thursday.
"Offshore NDFs are approaching the onshore levels - I think this is just position adjustments since people had a lot of long dollar positions," said a trader in Jakarta. Indonesias central bank governor Boediono said on Friday that the rupiah was expected to strengthen further.
But some analysts were concerned about Indonesias ability to cope with large-scale capital outflows. Indonesia had $53.7 billion in foreign exchange reserves as of March 6, up slightly from $50 billion at the end of 2005.
"The FX reserves are not enough to ward off rupiah jitters in a climate of elevated risk aversion and we expect dollar/rupiah to remain around 12,000 through the second quarter," said Tim Condon, head of Asia research at ING. "Beyond that, we expect improved risk appetite, the end of the BI easing cycle and diminished political risk to drive the pair close to 10,000 by the end of the year," he said in a note.