The South Korean won hit a near six-year high on Friday, leading weekly gains among emerging Asian currencies, as weak US economic data cemented views that the Federal Reserve may keep interest rates low, driving more funds to the region. The won rose as South Korea enjoyed another sizeable current account surplus even though the amount fell in May from a record high set in April due to higher imports.
The Taiwan dollar touched a near seven-month high as the central bank was seen tolerating appreciation in the second-worst performing emerging Asian currency so far this year. Malaysia's ringgit advanced on month-end corporate demand. The dollar fell against a basket of six major currencies in Asia after data on Thursday showed US consumer spending rose less than expected in May, causing economists to downgrade estimates for second-quarter growth.
That came as the world's top economy contracted more than expected in the first three months of the year. St Louis Fed President James Bullard said raising interest rates by the end of the first quarter in 2015 would be appropriate, based on expectations of higher growth and inflation.
Still, investors are focusing more on the current grim picture of the US economy. "We are seeing a fight between low growth and high inflation. But the growth leads inflation," said Jeong My-young, Samsung Futures' research head in Seoul. "So, the market sees a sustained accommodative policy, which will attract more carry trades into Asia," Jeong added. Most emerging Asian currencies have been main beneficiaries of easier monetary policies by major central banks.
So far this week, the won has gained 0.7 percent against the dollar, according to Thomson Reuters data. The Taiwan dollar followed the won with a 0.6 percent appreciation. The ringgit has risen 0.5 percent on some expectations that Malaysia's central bank was expected to raise interest rates next month. China's yuan and the Indian rupee have also each gained 0.1 percent this week.
The Indonesian rupiah bucked the trend, losing 1.1 percent on growing concerns over the country's current account deficit amid higher oil prices and uncertainty over the coming presidential election on July 9. The won rose as much as 0.3 percent to 1,013.2 per dollar, its strongest since August 2008, on increasing demand from exporters for month-end settlements.
Its non-deliverable forwards also strengthened as offshore funds appeared to be dumping dollar holdings to stop losses, traders said. The foreign exchange authorities were spotted intervening to stem appreciation in the best performing emerging Asian currency so far this year, according to traders. South Korea's industrial production in May fell the most in more than five years from the previous month, far missing market expectations and adding to signs the economic recovery may be losing steam.
"The won could rise further unless the authorities step in," said a foreign bank trader in Seoul. Without intervention, the South Korean currency could head to the psychologically-important 1,000 level, analysts and traders said. The Taiwan dollar rose 0.3 percent to 29.895 against the US dollar, its strongest since January 2, as exporters bought it for month-end settlements.
The central bank has not been spotted intervening yet, while dollar demand from importers and foreign financial institutions limited the Taiwan dollar's upside, traders said. On Thursday, the monetary authorities allowed the island's currency to end domestic trade stronger than 30.000, for the first time since January 2. The central bank appears to be loosening its grip in the currency market as the Taiwan dollar has underperformed regional peers, especially the won, traders said.
Taiwan's central bank closely watches the won's movements as some companies such as Taiwan Semiconductor Manufacturing Co Ltd compete with South Korean rivals in overseas markets. The ringgit rose 0.4 percent to 3.2050 against the greenback, its strongest since June 13. In May, Malaysia's central bank signalled it may need to tighten monetary policy soon to counter a "continued build-up of financial imbalances" such as rising household debt.
Some investors continued to expect the central bank to raise interest rates in July, even though inflation in May slowed to 3.2 percent, below market expectations, traders said. "The market has priced in a 25 bps (basis point) hike," said a senior Malaysian bank trader in Kuala Lumpur. The central bank holds a monetary policy meeting on July 10 and its benchmark interest rates stands at 3.00 percent now.
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