Bloomberg News

Asia Currencies Strengthen This Week on Growth, Rate Outlooks

July 08, 2011

July 9 (Bloomberg) -- Asian currencies rose for a second week, led by Thailand’s baht, on speculation the world’s fastest economic growth and rising interest rates will spur more fund inflows from abroad.

The baht posted its biggest five-day advance since December 2008 as overseas investors increased holdings of local assets after the Pheu Thai party won a clear majority in elections last weekend, reducing the scope for political unrest. China raised borrowing costs July 6 and the Bank of Thailand is expected to do so next week. Global funds pumped about $1.6 billion into South Korean, Thai and Indonesian equities in the first four days of the week, exchange data show.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen, rose 0.3 percent this week, touching a 14-year high of 119.40 yesterday. The baht climbed 1.9 percent to 30.24 per dollar, the Philippine peso strengthened 1 percent to 42.745 and South Korea’s won advanced 0.9 percent to 1,057.08, according to data compiled by Bloomberg.

“The difference in growth rates between Asia and developed economies will attract fund inflows,” said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong. “Asian currencies will strengthen toward year-end.”

Developing economies in Asia will expand 8.4 percent in 2011, outpacing growth of 2.5 percent in the U.S. and 2 percent in the euro region, according to International Monetary Fund estimates released last month. Benchmark interest rates of 7.5 percent in India and 6.75 percent in Indonesia compare with a maximum 0.25 percent in the U.S. and Japan.

Taming Inflation

The People’s Bank of China this week boosted one-year lending and deposit rates to 6.56 percent and 3.5 percent, respectively. China’s yuan was little changed from a week ago at 6.4650.

The baht reached a one-month high yesterday after incoming Prime Minister Yingluck Shinawatra said policy makers will let the currency appreciate to tame inflation, according to a Wall Street Journal report on July 7. The Bank of Thailand, which has boosted its benchmark interest rate four times this year, will lift it by a quarter of a percentage point to 3.25 percent on July 13, according to all 13 economists polled by Bloomberg.

“The baht got a boost from fund inflows into the nation on optimism the country will have a stable government for now,” said Kozo Hasegawa, a currency trader at Sumitomo Mitsui Banking Corp. in Bangkok. “Yingluck also showed an intention to let the baht rise, while the market is also pricing in a rate hike next week. The baht will stay on a bullish bias for now.”

‘Won’s Upward Momentum’

The won climbed to its highest level in almost three years after U.S. companies added twice as many workers as forecast in June, shoring up confidence the global economic recovery will be sustained. Employers in the world’s largest economy added 157,000 workers to their payrolls, according to figures released on July 7 by ADP Employer Services, more than the 70,000 forecast by economists in a Bloomberg survey.

The South Korean currency had a third weekly gain after Finance Minister Bahk Jae Wan said July 6 the local economy was expected to expand faster in the second half of 2011 than in the first six months.

“The won started off on a very strong note amid signs that the global economy is expanding,” said Hwang Sun Min, a Seoul- based currency dealer with Kookmin Bank, the nation’s largest lender. “The won’s upward momentum will continue.”

Elsewhere, Malaysia’s ringgit gained 0.5 percent this week to 2.9948 per dollar, Indonesia’s rupiah strengthened 0.2 percent to 8,520 and the Singapore dollar advanced 0.6 percent to S$1.2195. India’s rupee appreciated 0.6 percent to 44.3280 while Taiwan’s dollar slipped 0.1 percent to NT$28.795.

--With assistance from Kim Kyoungwha in Singapore. Editors: Paul Tighe, Jim McDonald

%VND %KRW %KRW %USD %SGD %THB %PHP %TWD %IDR %MYR %HKD %CNY

To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net; Andrea Wong in Taipei at awong268@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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