Hedge funds piled into the won on Wednesday, lifting it to a seven-week high against the dollar and suggesting the South Korean currency may lead other Asian currencies higher in the second quarter with foreign equity flows to the region expected to remain solid.
The won climbed to as high as 1,103.90 per dollar in local trade as the surprising absence of intervention by Korean authorities caused macro funds and other investors to bail out of short won positions, accelerating the upward move. Asian currencies weathered comments from Dallas Fed President Richard Fisher that he would vote against any further monetary easing by the central bank after the current program is finished in June.
Possible tightening by the Fed would not drag on Asian currencies much as the regional central banks are seen raising rates further to fight inflation, analysts said. The won ended local trade at 1,104.2, the strongest close since late April 2010. It is on track to be the third-best performing emerging Asian currency in the first quarter, up 2.8 percent.
Indonesia's central bank was again spotted checking the rupiah's gains, dealers said, though upward pressure on the rupiah from offshore players may end up dragging the pair toward 8,705 in the medium term. The baht is particularly attractive as a funding currency for leveraged funds as it has very low volatility, it added. The baht has lost 0.53 percent so far this year, becoming the worst performing currency among emerging Asian units.