Most Asian currencies soar
Most emerging Asian currencies rose on Friday as the European Central Bank eased its monetary policy, as expected, raising hopes of increased capital flows to Asia, while also finding support from a strong yuan. The Chinese currency advanced after the central bank raised the daily fixing for the renminbi by the largest percentage in a single day since early January. Malaysia's ringgit gained on strong April trade data.
Copyright Reuters, 2014
The Thai baht hit a near two-week high on demand from offshore funds. Interbank speculators in the Philippines lifted the peso. On Thursday, the ECB cut interest rates to record lows, launched a series of steps to pump money into the sluggish euro zone economy, and pledged to do more, if needed, to prevent deflation. With more money from the ECB, investors are likely to keep looking for higher yields in emerging Asia, traders and analysts said.
"The ECB will provide unlimited, cheaper funds at fixed rates for extended periods of time," said Dariusz Kowalczyk, a senior economist and strategist for Credit Agricole CIB in Hong Kong. Still, some emerging Asian currencies are unlikely to fully benefit from the ECB's easing due to local issues, analysts said, noting regional foreign exchange authorities were likely to act to reduce the volatility created by capital inflows.
"External balances for some Asian currencies such as the IDR still need to improve," said Paul Mackel, head of currency strategy at HSBC, in a client note, referring to the Indonesian rupiah. Despite Friday's gain, the rupiah has fallen 1.4 percent so far this week, underperforming other emerging Asian currencies, according to Thomson Reuters data.
For the week, the rupee has eased 0.2 percent with the central bank spotted intervening to stem further appreciation in the best-performing Asian currency so far this year. The South Korean won edged down on similar official intervention. Investors were awaiting May US non-farm payrolls data later in the day. The baht rose as much as 0.4 percent to 32.54 per dollar, its strongest since May 26 as interbank speculators joined offshore funds buying the baht.
The baht has also risen 0.9 percent against the dollar so far this week, outperforming emerging Asian currencies. The ringgit advanced as improving risk sentiment after the ECB's easing prompted interbank speculators to buy ringgit. The Malaysian currency found more support as the country reported a trade surplus of 8.9 billion ringgit ($2.8 billion) in April, beating market expectations of a 6.9 billion ringgit surplus. The peso gained when interbank speculators bought the currency as government bond prices rose and yields fell.