Most emerging Asian currencies extended gains on Thursday on expectations that the Bank of England will cut interest rates later in the day, joining a fresh global wave of stimulus and further improving investors' appetite for riskier assets. Malaysia's ringgit hit a 10-week high as the government bond prices extended gains after the central bank's surprise interest rate cut on Wednesday.
The South Korean won also touched its strongest level in more than 10 weeks after Bank of Korea kept borrowing costs unchanged and on stock inflows. Investors also bought the won versus the yen. Asian shares stayed around an eight-month high. The Bank of England is expected to slash interest rates later in the day, for the first time in more than seven years, to help the economy tackle the shock decision by voters to leave the European Union.
Risk sentiment has already been buoyed by prospects that Japanese Prime Minister Shinzo Abe would launch a new campaign to save the economy. "Emerging Asian currencies are expected to strengthen further in the third quarter as reflationary policies will support risky assets, although we stay cautious over consequences from Brexit," said Qi Gao, an emerging Asian currency strategist for Scotiabank in Singapore. Gao said the won, the ringgit, the Indonesian rupiah and the Indian rupee are seen major beneficiaries in the region.
The ringgit rose 0.5 percent to 3.9500 per dollar, its strongest since May 4. The Malaysian currency also rose in non-deliverable forwards markets on demand from leveraged funds. The government bond yields slid with the 10-year return hitting 3.563 percent, the lowest since July 2013. Currency traders saw some foreign capital inflows for the government bond sale. The country sold 2.5 billion ringgit ($631.7 million) bonds maturing in 2031.
On Wednesday, Bank Negara Malaysia cut its policy interest rate by 25 basis points to 3.00 percent, for the first time in seven years. The won advanced as much as 0.7 percent to 1,138.8 per dollar, its strongest since May 3. Foreign banks chased the South Korean currency as offshore funds continued to purchase Seoul stocks. Local exporters also bought the won for settlements.
The won may have room for further appreciation, probably to 1,128-1,133, as it strengthened past a chart resistance at 1,144.2, the 76.4 percent Fibonacci retracement of its depreciation from April to June, analysts said. Still, caution grew over possible intervention by the foreign exchange authorities to curb the won's appreciation.