Most emerging Asian currencies extended gains on Wednesday as risk sentiment improved with strong US economic data and sustained hopes of stimulus steps from China, while the yuan rose after the central bank fixed its daily midpoint stronger. The South Korean won hit a near three-month high as foreign investors continued to buy local shares. The Taiwan dollar gained on stock inflows.
Asian stocks advanced to a fresh four-month high after US manufacturing activity expanded in March and new vehicle sales rose, indicating the world's largest economy escaped the effects of a severe winter. A strong US economy was seen helping the Federal Reserve stay on track with tapering stimulus, but its impact on emerging Asian currencies would be offset to some degree by the better outlook of the region's major export markets, analysts said.
"We entertain the prospect of further leg room for the dollar to test the downside against Asian currencies selectively into the summer if investors continue to seek risky assets and higher yields," said Emmanuel Ng, a foreign exchange strategist for OCBC Bank in Singapore. "We have had a relative preference for the likes of the INR and the IDR," Ng said, referring to the Indian rupee and the Indonesian rupiah.
The two currencies have been the best performing Asian currencies so far this year as improving economic fundamentals of the countries attracted foreign capital inflows. Investors are awaiting the March US payrolls report on Friday, which is expected to show employment picked up to 200,000 last month. The Taiwan dollar rose on stock inflows, as well as appreciation in the yuan and the won.
Traders, however, said the Taiwan dollar was unlikely to strengthen past 30.250 to the US dollar, seeing its recent gains as too fast. The island's currency has risen more than 1 percent since March 24, when it hit its weakest since October 2011. Investors stayed wary of possible intervention by the central bank to stem its strength, even though the authority has not been spotted yet, traders said. Importers bought the greenback around 30.300 for payments, while exporters stayed away as they sold the US dollar when it was 30.350. The won rose 0.2 percent to 1,056.2 per dollar, its strongest since January 13, as foreign investors extended their buying spree in Seoul's main stock market to a sixth consecutive session.