Bloomberg News

Asian Currencies Strengthen on Growth Outlook, Europe Optimism

October 25, 2011

Oct. 25 (Bloomberg) -- Asian currencies climbed to a one- month high after Chinese manufacturing data brightened the regional export outlook and on speculation Europe will contain its debt crisis, cooling demand for the safety of dollars.

India’s rupee extended a rebound from a 30-month low after the central bank raised interest rates for the seventh time in 2011 and South Korea’s won rose to a five-week high. China’s manufacturing may expand this month for the first time since June, a preliminary index released by HSBC Holdings Plc and Markit Economics yesterday showed. Europe’s leaders will meet tomorrow for the second time in four days to discuss solutions to the region’s debt problems.

“Risk appetite is coming back into Asian currencies on hopes for a comprehensive resolution at the European summit,” said Choong Yin Pheng, manager for economic and fixed-income research at Hong Leong Bank Bhd. in Kuala Lumpur. “The greenback is battered down in the short term.”

The won strengthened 0.5 percent to 1,129.16 per dollar at the close in Seoul, according to data compiled by Bloomberg. The rupee rallied for a second day, gaining 0.4 percent to 49.655 and Malaysia’s ringgit rose 0.2 percent to 3.1278.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, rose 0.2 percent, set for the highest close since Sept. 19. Overseas investors bought $689 million more Taiwanese, South Korean and Indonesian stocks than they sold yesterday, according to stock exchange data.

The European Financial Stability Facility can be bolstered under two models that may be combined and implemented “quickly,” according to a document provided to German lawmakers yesterday.

Korean Won

The won strengthened for a second day. Minutes of the Bank of Korea’s Sept. 8 meeting showed two of six board members opposed the decision to hold the benchmark rate, calling for an increase to 3.5 percent from 3.25 percent.

A Commerce Department report on Oct. 27 will show the U.S. economy expanded 2.5 percent in the three months ended Sept. 30, the most in four quarters, according to a Bloomberg survey. The Federal Reserve may embark on another round of bond buying that increases the supply of dollars to support growth if warranted, Vice Chairman Janet Yellen said on Oct. 21.

“There has been some talk of quantitative easing in the U.S., which stoked speculation of fund inflows into Asia again,” said Daisuke Uno, Tokyo-based chief strategist at Sumitomo Mitsui Banking Corp. “That will boost emerging-market currencies.”

India, Singapore

India’s rupee was set for the biggest two-day gain since Oct. 10. The Reserve Bank of India boosted the repurchase rate to 8.5 percent from 8.25 percent, saying the likelihood of a rate action in the next review in December “is relatively low.” Today’s move was predicted by 18 of 28 economists in a Bloomberg News survey, with the rest calling for no change.

“The damage that rate increases are starting to inflict on the economy is getting larger,” said Sanjay Mathur, head of research and strategy for non-Japan Asia at Royal Bank of Scotland Group Plc. Pausing to assess the impact of past rate additions “is a very appropriate stance.”

Singapore’s dollar climbed 0.6 percent to S$1.2628 as a government report showed industrial production rose 12.8 percent in September from a year earlier, compared with the median forecast of economists in a Bloomberg survey for an 8.2 percent gain. Output jumped 22.8 percent in August.

Yuan Fixing

The yuan strengthened 0.24 percent to 6.3604 per dollar in Shanghai, the the biggest advance in two weeks. The central bank fixed its reference rate 0.2 percent stronger to a record 6.3425, spurring speculation policy makers are favoring currency gains to tame inflation.

“Today’s fixing shows they are maintaining gradual appreciation to help contain inflation,” said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd.

Elsewhere, Taiwan’s dollar was little changed at NT$30.125 per dollar and the Philippine peso gained 0.3 percent to 43.138. Indonesia’s rupiah weakened 0.2 percent to 8,855 and Thailand’s baht climbed 0.5 percent from Oct. 21 to 30.86.

--With assistance from Jiyeun Lee in Seoul, Yumi Teso in Bangkok, Andrea Wong in Taipei and Kyoungwha Kim in Beijing. Editors: Andrew Janes, Anil Varma

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net

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


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