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Asian currencies rise over unlikely hike on US interest rates

Asian currencies rise over unlikely hike on US interest rates
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First Published: Thu, Mar 22 2007. 04 57 PM IST
Updated: Thu, Mar 22 2007. 04 57 PM IST
By Yumi Teso, Bloomberg
Singapore: Asian currencies climbed, with Malaysia’s ringgit reaching the highest since February 1998, as the Federal Reserve dropped its bias toward raising interest rates, encouraging investors to seek higher-yielding assets.
US Treasury yields fell yesterday as the Fed dropped a reference to “additional firming” at its rate-setting meeting. The outlook for lower global interest rates also boosted Asian stocks, helping send the Singapore dollar to a nine-year high.
“The drop in US bond yields on the Fed statement is putting downward pressure on the dollar against Asian currencies,” said Osamu Takashima, chief analyst of the global markets sales and trading division at Bank of Tokyo-Mitsubishi UFJ Ltd in Tokyo. “There’s expectation investors will bring money into the region.”
The ringgit gained 0.2% to 3.4685 against the dollar as of 4:45 pm in Kuala Lumpur, after earlier reaching 3.4585. The Indonesian rupiah climbed 0.4 % to 9,100 and the Philippine peso rose 0.3% to 48.245, according to data compiled by Bloomberg. The Singapore dollar advanced 0.4% to S$1.5175, after reaching S$1.5166, the strongest since September 1997.
Lower rates would also widen the premium for holding currencies such as the rupiah, where the key rate is 3.75 percentage points higher than the US benchmark.
The US dollar weakened today against 12 of the 15 most actively traded Asia-Pacific currencies. Countries with the highest yields, such as Australia and New Zealand, led gains.
Capital Inflows
The Malaysian ringgit also advanced after the central bank eased capital control measures to widen currency market access.
Bank Negara Malaysia yesterday removed a cap on domestic banks undertaking foreign-exchange transactions and allowed global investors more access to credit to buy properties and local-currency bonds, effective from April.
“Capital inflows will be a greater attraction than outflow, and with that, the ringgit can appreciate,” said Thio Chin Loo, a senior currency analyst at BNP Paribas in Singapore. “The overnight collapse in the dollar has added more weight to the ringgit’s upside.”
The ringgit may reach the next two targets of 3.45 and 3.42 “quickly,” Thio said.
Asian stocks climbed to a three-week high following the Fed statement, with the Morgan Stanley Capital International Asia- Pacific Index gaining as much as 1.9%.
Yen Lags Behind
Japan’s currency lagged behind a rally against the dollar as gains in stocks gave traders confidence to borrow and sell the currency to invest in riskier assets elsewhere. Bank of Japan Governor Toshihiko Fukui told parliament the central bank will keep rates “extremely low” for some time.
South Korea’s won strengthened to a one-month high and the Taiwan dollar gained the most in two months on speculation demand will increase as local equity indexes extended this week’s gains.
The won climbed for a fourth day, supported by comments from the central bank that the economy will maintain its pace of growth. Emerging-market stocks this month have recovered from a global sell off, with the Morgan Stanley Capital International Asia-Pacific Index rising 5.5% since 5 March.
“Investors are beginning to put money into emerging markets again, including South Korea, and that helps boost the won,” Bank of Tokyo-Mitsubishi’s Takashima said. “The won may remain under appreciation pressure.”
The won was at 937.90 against the dollar, the highest close since 16 February, taking this week’s rally to 0.7%, according to Seoul Money Brokerage Services Ltd. The currency may advance to 930 in the next week, Takashima said.
Taiex Rallies
Fund managers abroad bought more Korean equities than they sold for a third day, snapping four days of net sales, according to stock exchange data.
Taiwan’s benchmark Taiex index jumped 0.9%, extending a rally since 5 March to 6.1%. Overseas fund managers bought more Taiwan stocks than they sold for six straight days after offloading a net $4.66 billion in the first two weeks of the month, according to stock exchange data. Today’s purchases exceeded sales by the most since 28 December 2005.
The US is Taiwan’s second-biggest market for exporters, whose sales account for about half of the island’s economy.
“The local stock markets today have had quite a strong performance, supporting the case for fund inflows,” said Sadaaki Kondou, assistant general manager of the treasury department at Mizuho Corporate Bank Ltd in Taipei. “That should support the Taiwan dollar.”
The local dollar gained 0.3% to close at NT$32.993 against the US currency, according to Taipei Forex Inc.
Elsewhere, the Thai baht gained 0.4% to 34.65 in onshore trading, according to data compiled by Bloomberg.
— With reporting by David Yong in Kuala Lumpur
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First Published: Thu, Mar 22 2007. 04 57 PM IST
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