Asian Currencies Gain; Fed Growth Outlook May Spur Local Demand

By Aaron Pan and Clarissa Batino

June 26 (Bloomberg) -- Asian currencies gained, led by the Philippine peso, on speculation investors will buy the region's assets after the Federal Reserve said risks to growth in the world's biggest economy have diminished.

The peso, the region's worst performer this quarter, climbed after the main stock index advanced for a second day. Bangko Sentral ng Pilipinas Governor Amando Tetangco today said ``the Fed's emphasis on inflation could be positive for emerging-market economies.'' Eight of the 10 most-traded Asian currencies outside of Japan strengthened today.

The Fed is ``improving the sentiment of investors'' and buoying the peso, said Ricky Cebrero, a treasurer at East West Banking Corp. in Manila.


The currency appreciated to 44.455 a dollar as of 11:56 a.m. in Manila, according to Tullett Prebon Plc. It closed at 44.59 yesterday, according to Bankers Association of the Philippines. Today's gain is ``just a knee-jerk reaction'' and the peso may weaken to 45.85 next quarter, the East West treasurer said.

The Fed kept its benchmark rate at 2 percent yesterday. ``That gives the Philippine central bank the flexibility not to be aggressive in hiking interest rates,'' Cebrero said.

Elsewhere, the Singapore dollar gained 0.2 percent to S$1.3646, Malaysia's ringgit added 0.2 percent to 3.2561 and Thailand's baht rose 0.1 percent to 33.57.

Bank Indonesia

Indonesia's rupiah climbed to the strongest level in almost seven weeks on speculation overseas investors will buy the nation's bonds as the yield advantage over the U.S. widens.

The currency gained 1.8 percent this year as Bank Indonesia raised its benchmark interest rate to a one-year high this month after inflation accelerated to the fastest pace in 20 months in May. The central bank will next meet to decide interest rates on July 3.

``With the Fed holding the rate and if BI will raise the rate, that's good for rupiah assets,'' said Rio Lanasier, a currency trader at Bank DBS Indonesia in Jakarta. ``Mostly foreign banks sold dollars for the rupiah to get into bonds.''

The currency rose as high as 9,225, the highest level since May 9, before trading at 9,228 per dollar, compared with 9,263 late yesterday, according to data compiled by Bloomberg. The rupiah may strengthen to 9,220 between now and the end of next week, Lanasier forecast.

Rate Increase

The central bank may raise its reference rate for bill sales next week by 25 basis points to 8.75 percent, Lanasier said, pushing Indonesia's benchmark to 6.75 percentage points above the Fed's, the widest gap since 2006.

Indonesia's inflation may have quickened to 12.7 percent in June from a year earlier, compared with 10.4 percent in May, according to the median estimate of 12 economists in a Bloomberg News survey before a government report on July 1.

South Korea's won rallied on speculation the nation's foreign-exchange authorities will buy the currency to temper inflation at the fastest in seven years.

The won pared its fourth straight monthly decline after Choi Jong Ku, head of the finance ministry's international finance bureau, said this week the government will take ``continuous'' steps to stabilize the won. The local currency gained the most in three months on June 17 after Choi said the same day that the government will take ``solid'' measures to temper inflation.

`Cautious' Mood

``The mood is cautious that the authorities may step in to curb the won's loss as the dollar nears the pre-intervention level of 1,040,'' said Kim Hee, a currency dealer at state-run Korea Development Bank in Seoul. Still, ``the upward pressure for the dollar remains as importers buy dollars to pay bills.''

The won climbed 0.3 percent to 1,034.5 a dollar, according to Seoul Money Brokerage Services Ltd. The currency has fallen 4.2 percent this quarter taking its loss this year to 9.5 percent, the second-worst performance in the region.

The won also gained as overseas investors bought more local shares than they sold, ending 13 days of net sales. Fund managers outside the nation bought a net 29 billion won ($28 million) of shares today, according to Korea Exchange.

Central banks intervene in currency markets by buying or selling foreign exchange. A stronger currency helps limit inflation by reducing the cost of imports.

Taiwan's dollar was little changed at NT$30.378, while the Vietnamese dong held at 16,615.

To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Clarissa Batino in Manila at cbatino@bloomberg.net.