Asian Currencies Advance as Inflows Overwhelm Intervention

Oct. 10 (Bloomberg) -- India’s rupee led weekly gains in Asian currencies as signs the region is recovering from a global recession attracted investment, overwhelming attempts by central banks to stem appreciation.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-active regional currencies excluding the yen, rose 0.5 percent in the last five days, a sixth straight weekly gain, as Asian stocks rallied. Philippine central bank Deputy Governor Diwa Guinigundo signaled policy makers favored “more moderate” appreciation in the peso, and the Central Bank of the Republic of China (Taiwan) yesterday flagged the merits of capital controls after the island’s dollar reached a one-year high.

“We’re seeing real money flows, institutional investors globally making a large allocation into emerging markets, the strongest since early 2007,” said Steven Chang, senior managing director of foreign-exchange trading at State Street Bank & Trust Co. in Hong Kong. “Central banks in the region are smoothing the market appreciation.”

The rupee jumped 2.7 percent this week to 46.475, according to data compiled by Bloomberg. Malaysia’s ringgit rose 2.4 percent to 3.3981, Indonesia’s rupiah climbed 2 percent to 9,455 and South Korea’s won rose 0.9 percent to 1,164.38.

The Hong Kong Monetary Authority intervened three times during the week, injecting a total HK$16.3 billion ($2.1 billion) in the financial system to defend the currency’s fixed trading range of HK$7.75 to HK$7.85 per dollar, according to data compiled by Bloomberg. Central banks intervene by arranging purchases or sales of currencies to influence exchange rates.

‘Supporting the Dollar’

South Korea’s central bank yesterday kept its benchmark interest rate unchanged at a record-low 2 percent. Governor Lee Seong Tae said it was “undesirable” for the won to move in one direction.

The Bank of Korea’s decision came as other central banks begin to indicate a willingness to raise rates. Australia unexpectedly raised its benchmark on Oct. 6 from a 49-year low, becoming the first Group of 20 nation to act since the start of the global financial crisis more than a year ago.

“The only reason the won hasn’t strengthened a lot more is because the central bank is supporting the dollar,” State Street’s Chang said.

Foreign investors have bought $19.4 billion more Korean stocks than they sold this year, while net purchases in India and Taiwan each total more than $12 billion, exchange data show.

‘Positive Outlook’

Malaysia’s ringgit completed its biggest weekly gain this year after Bank Negara Malaysia said the economy contracted at a slower pace in the third quarter and will likely return to growth in the final three months of this year. Exports fell 19.8 percent in August from a year earlier, the least since March, the trade ministry said Oct. 8.

“The central bank is positive on the outlook and we should see better data supporting the ringgit,” said Azmi Shukri Rahman, a currency trader at CIMB Investment Bank Bhd. in Kuala Lumpur. “The weak dollar sentiment will continue for a while and we may see more foreign funds in stocks here.”

Indonesia’s rupiah rose a fifth week, the longest winning streak since April, after policy makers kept borrowing costs unchanged to stimulate economic growth. Bank Indonesia Deputy Governor Budi Mulya said on Oct. 5 the rupiah may strengthen further this year.

Intervention

The central bank on Oct. 5 held its reference rate at 6.5 percent, the highest benchmark among Asia’s 10 biggest economies. It also raised the 2009 growth forecast to 4.3 percent, from 4 percent, and said gross domestic product will accelerate 5.5 percent in 2010. Bank Indonesia does not want the rupiah to strengthen too rapidly, Deputy Governor Hartadi Sarwono said yesterday.

The central bank intervened the previous day because the rise in the rupiah “has been too fast,” said Lindawati Susanto, head of foreign-exchange trading at PT Bank Resona Perdania in Jakarta.

Bank Indonesia bought about $50 million of the U.S. currency on Oct. 8, Susanto said, adding that the central bank will continue to step into the market next week if the rupiah remains volatile.

Elsewhere, the Philippine peso climbed 1.4 percent this week to 46.46. Thailand’s baht gained 0.6 percent to 33.32 and the Singapore dollar climbed 1.7 percent to close at a 14-month high of S$1.3928.