Asian Currencies Post Weekly Gains as Stock Rally Draws Funds

By Anil Varma and Bob Chen

Dec. 20 (Bloomberg) -- Asian currencies gained this week, led by South Korea’s won and Malaysia’s ringgit, as a rally in regional stocks helped draw funds.

Eight of the 10 most-active Asian currencies outside Japan rose on speculation U.S. interest rates as low as zero are fueling demand for higher-yielding assets. The won, Asia’s worst performer this year, strengthened 14 percent this month as policy makers expanded swap deals with China and Japan. Hong Kong’s dollar was unchanged at the upper end of its fixed exchange-rate band.

“The dominant swing in emerging Asia currencies has been the shift away from the dollar,” said David Cohen, director of Asian forecasting at Action Economics in Singapore and a former Fed official.

The won strengthened 6.4 percent this week to 1,290 per dollar, according to Seoul Money Brokerage Services Ltd. Malaysia’s ringgit had its best week since a peg to the dollar ended more than three years ago and Taiwan’s dollar jumped the most in a decade.

Asian stocks advanced this week after the Federal Reserve on Dec. 16 cut its federal funds rate to between zero and 0.25 percent and said it will use “all available tools” to combat a recession in the world’s biggest economy.

The MSCI Asia Pacific Index of regional shares has climbed 8.7 percent so far in December, headed for its biggest monthly advance since June 1999. The last time the benchmark posted a monthly increase was April.

Malaysian Ringgit

Malaysia’s ringgit rose 3.3 percent this week to 3.4687 per dollar and touched an 11-week high of 3.4390 in Kuala Lumpur yesterday.

The currency rose after “the dollar interest rate was lowered,” said Action Economics’ Cohen. “That seems to be the primary driver.”

India’s rupee had a third weekly advance and reached the highest in 2 1/2 months yesterday. Funds based abroad bought more Indian shares than they sold since Dec. 1, set for the first month of net purchases since April, data on average daily trading from the nation’s capital markets regulator showed.

“I expect the rupee to strengthen from here as capital inflows are improving,” said Puneet Sharma, currency trader at state-owned Allahabad Bank in Mumbai. “The rupee has been reflecting the trend in stocks and may continue to do so.”

The rupee strengthened 2.8 percent this week to 47.255 per dollar in Mumbai, according to data compiled by Bloomberg. The currency has rebounded more than 7 percent since reaching a record low of 50.615 on Dec. 2.

‘Bold’ Move

The Philippine peso, which had its best week since July, weakened yesterday after the central bank cut its key interest rate on Dec. 18 by more than economists forecast.

Bangko Sentral ng Pilipinas reduced the rate it pays banks for overnight deposits by half a percentage point to 5.5 percent, twice the reduction forecast by economists in a Bloomberg News survey.

“The move was bold, given their cautious stance,” said Radhika Rao, an economist at Ideaglobal Ltd. in Singapore. “Some quarters were surprised, but the peso is in an appreciating mode.”

The currency was up 2.5 percent this week, rebounding almost 7 percent from last month’s two-year low of 50.175.

Taiwan’s Dollar

Taiwan’s dollar climbed 2.4 percent this week to NT$32.53 per dollar, its biggest gain since October 1998, as overseas investors bought more local stocks than they sold. Taiwan’s central bank intervened on Dec. 18 to check the currency’s advance, the China Times reported yesterday, citing traders it didn’t name.

The currency touched NT$32.432 on Dec. 18, the highest level since Oct. 16, before retreating 0.2 percent yesterday.

Money managers based abroad bought a net NT$17.7 billion ($543 million) of Taiwan equities this week, according to data provided by the stock exchange. The local currency is “relatively stable,” Taiwan’s central bank said Dec. 18.

Elsewhere, Singapore’s dollar gained 2.7 percent this week to S$1.4537 against the U.S. currency. Thailand’s baht climbed 1.4 percent to 34.50 and Indonesia’s rupiah rose 0.9 percent to 10,950. China’s yuan slipped 0.1 percent to 6.8465 and Vietnam’s dong traded at 16,987.5, versus 16,982.5 on Dec. 12.

To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Bob Chen in Hong Kong at bchen45@bloomberg.net.