Emerging Asian currencies rebounded on Tuesday thanks to expectations of more capital inflows to the region amid increasing prospects for further easing by the European Central Bank. The South Korean won and the Taiwan dollar rose on exporters' month-end demand. Offshore funds lifted the Thai baht.
Regional stocks edged up, tracking the overnight rally in global equities, as the ECB is expected to pump up more liquidity as early as next week to boost the ailing euro zone economy. Asian financial assets were supported as easier monetary policies by major central banks helped investors seek higher yields. Expectations of the ECB's measure came when the US Federal Reserve is on the course to end quantitative easing in October and investors are mulling on when the Fed would start raising interest rates.
"An ECB's easing may reduce potential impact on Asian currencies of the Fed's rate hike as investors can use the euro for carry trades instead of the dollar," said Jeong My-young, Samsung Futures' research head in Seoul. The won gained as exporters bought it for month-end settlements. Caution grew over possible intervention by the foreign exchange authorities as the won hovered near a six-year high to the yen.
On Monday, the South Korean currency hit 9.7416 to the yen, its strongest since August 2008. The Taiwan dollar rose on month-end demand from exporters for settlements. Still, exporters hesitated to chase the currency, seeing the island's currency as expensive, traders said.
Foreign financial institutions showed mixed interests as local shares barely changed. The baht advanced on demand from offshore funds such as real money accounts, traders said. Thailand's government bond prices rose with the five- and 10-year bond yields down.