The Taiwan dollar hovered around a 13-year high and the South Korean won hit a six-week peak, leading overall gains in Asian currencies, as investors resumed buying assets in the region on the first trading day of 2011. Asian currencies are expected to stay firm thanks to continued inflows of funds attracted by the region's strong growth prospects and optimism about US recovery and its positive impact on Asian exporters, analysts and dealers said.
"The outlook for the US economy improved much, which means the brighter outlook for export-oriented Asian economies such as Taiwan and South Korea. That will attract more funds to Asia," said Kim Song-yi, an economist at HSBC in Hong Kong. The HSBC/Markit purchasing managers' survey for South Korea showed export orders grew in December at the fastest pace since June 2010. A similar survey for Taiwan also showed a sharp rise in export orders in December, according to HSBC.
Financial markets in China and Thailand were closed for holidays. The Taiwan dollar surged over 4 percent against the US dollar on foreigners' buying and bouncing back from a level hit at the close of trade on Friday following central bank's intervention. The spot and NDF markets saw some short covering in the US dollar, but traders expect the Taiwan dollar to test the resistance level of 29 per the US dollar. The currency strengthened to as firm as 29.090 per the US dollar, a notch weaker than 29.080 hit last Thursday, its strongest since October 1997.
The central bank is expected to intervene later to prevent the Taiwan dollar from ending local trade stronger than 30 versus the US currency, dealers and analysts said. "I expect the pair to close below 30 later in January. Intervention can slow the momentum of foreign inflows but it is hard to reverse it," said Pin Ru Tan emerging markets forex and rates strategist at the Royal Bank of Scotland in Singapore.
The won rose 0.9 percent as investors built up dollar-short positions on healthy economic data and firm Seoul shares. The won found more support as South Korean bonds received a lift by Pyongyang's call for an end to the confrontation with Seoul, urging dialogue after one of the most violent years on the divided peninsula since the 1950-53 Korean War.
The local currency was settled at as firm as 1,125.0 per dollar in the domestic trade, the strongest since November 22. "The market is expected to aggressively test a resistance line of 1,100 early January," said Lee Jin-woo, research head of NH Investment & Futures. Foreign investors turned to net buyers of Seoul stocks, purchasing a net 310.6 billion won worth of stocks on the main exchange, helping the benchmark KOSPI hit a record closing high. Still, market players remained cautious over possible dollar-buying intervention and importers bought dollars for settlements around 1,120 per dollar.