Manila / Hong Kong: Asian currencies climbed against the dollar on Tuesday, led by South Korea’s won and Indonesia’s rupiah, on speculation regional economies will raise interest rates before the US does to damp inflation.
Economic expansion: A stock board in Seoul, South Korea. The rise in Asian currencies was led by the won. Nasha Lee / Bloomberg
Korea needs to prepare an exit strategy from its fiscal stimulus programme, finance minister Yoon Jeung Hyun said on Monday, less than a week after the central bank signalled it may raise its benchmark rate from a record low 2%. Inflation in Indonesia accelerated in August for the first time in 11 months and Bank Indonesia on 3 September refrained from cutting borrowing costs for the first time in 10 months.
Policymakers are becoming more concerned about the impact of the monetary and fiscal easing, said Mirza Baig, a currency strategist at Deutsche Bank AG in Singapore. Falling US yields and the belief that the US Federal Reserve will keep rates low will boost Asian currencies, he said.
The won gained 0.5% to close at 1,218.45 per dollar in Seoul, according to data compiled by Bloomberg. It earlier touched 1,217.40, the strongest level since 5 August. The rupiah added 0.8% to 9,885 and India’s rupee rose 0.2% to 48.6350.
The Dollar Index, a gauge of the greenback’s strength, was near its lowest level in almost a year as the Fed’s near-zero benchmark interest rate encouraged investors to sell the US currency and buy higher-yielding assets elsewhere. President Barack Obama said on Monday his administration must avoid removing stimulus prematurely as data suggest the world’s biggest economy is returning to growth.
“There will be more expectations as we go into the close of 2009 that Asian central banks will begin to hike,” said Vishnu Varathan, a regional economist at Forecast Pte Ltd. “We don’t expect the Fed to start raising earlier than the first half of 2011.”
Government bonds rallied across Asia in the past 12 months, led by Indonesia and India, as central banks slashed interest rates and injected cash into their financial systems to thaw credit markets following the collapse of Lehman Brothers Holdings Inc. a year ago on Tuesday.
“There’s a lot of liquidity and cash gives you almost nothing; a very low return,” said Nizam Idris, a currency strategist at UBS AG in Singapore. “It encourages people to use money to take on risk.”
Korea may expand 3% in 2010, Moody’s Investors Service said on Tuesday, citing a timely stimulus programme and its banking system. Bank of Korea’s total rate cut of 3.25 percentage points between October and February was its most aggressive easing since the bank began a policy rate in a decade.
The won dropped 8.9% in the 12 months since credit markets seized after Lehman collapsed. India’s rupee fell 5.5% during the same period followed by the rupiah’s 4.2% losses. Indonesia’s local currency bonds returned 28% in the past 12 months and India’s 11%, according to indexes compiled by HSBC Holdings Plc. The MSCI Asia Pacific Index of shares tumbled as much as 39% following Lehman’s failure and a subsequent US bailout of American International Group Inc., before recouping all of its loss. The won fell as much as 31%, reaching a decade-low 1,597.45 per dollar in March.
The Philippine peso gained on Tuesday on speculation improving remittances from citizens living abroad will shore up demand for the currency. Funds sent home may increase 3% this year after totalling a record $16.4 billion in 2008, Businessworld reported, citing governor Amando Tetangco. Money repatriated climbed 9.3% in July, the fastest pace in eight months, the central bank said on Tuesday.
The peso appreciated 0.3% to 48.333 per dollar. The rupiah touched 9,885, the highest level since 7 August.
Taiwan’s dollar traded near a three-month high on speculation improving economic ties with China will encourage overseas investors to pump more money into the island’s assets. The Taiex index has climbed 60% so far this year as global funds bought $9.96 billion more local equities than they sold.
President Ma Ying-jeou said he aims to sign the Economic Cooperation Framework Agreement, a trade accord with China, by early 2010, the Economic Daily News cited him as saying in a meeting with legislators on Monday.