Asian currencies rallied this week, led by Malaysia’s ringgit and Thailand’s baht, after the US Federal Reserve unexpectedly maintained monetary stimulus that has led to capital inflows to emerging markets.
Fed Chairman Ben Bernanke said on Wednesday that more evidence of a recovery in the world’s largest economy was needed before the central bank starts paring its US$85 billion per month bond purchases. Global funds bought US$951 million more stocks than they sold this week in Indonesia, the Philippines and Thailand.
“Investors reversed positions built up across the board on speculation about the stimulus reduction,” said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute in Tokyo. “But the Fed will eventually trim stimulus, and investors will become more selective. The long-term trend of gradual [US] dollar appreciation may remain intact.”
The ringgit strengthened 4 percent this week to 3.165 per US dollar in Kuala Lumpur, according to data compiled by Bloomberg. The baht appreciated 2.9 percent to 30.96 and the Indonesian rupiah gained 0.5 percent to 11,350.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, climbed 0.5 percent during the five days to 115.84 in Singapore.
Taiwan’s currency markets were shut for two days for the Mid-Autumn Festival. The New Taiwan dollar closed the week up 0.3 percent at NT$29.752 against the US dollar. Dealers said the local currency could get a boost when markets reopen tomorrow following the Fed’s decision to keep its massive stimulus measures intact.
The Reserve Bank of India unexpectedly raised its benchmark repurchase rate by a quarter percentage point to 7.5 percent on Friday, the first increase since 2011. Bank Governor Raghuram Rajan, who took office two weeks ago, is seeking to rein in inflation that is hurting the poor and dimming economic prospects. The rupee dropped 0.8 percent to 62.2775 in Mumbai, trimming the week’s gain to 1.9 percent.
The rupee and Indonesia’s rupiah have lost 12 percent and 15 percent this year against the US dollar respectively, as investors fled nations with worsening current-account deficits.
Elsewhere in Asia, the Philippine peso rose 1.9 percent this week to 43.037 per US dollar. Vietnam’s dong traded at 21,115, unchanged from the end of last week. South Korea’s markets were shut for three days from for public holidays, China for two days and Hong Kong for one.
The US currency also fell against the majority of its 16 most-traded peers for a third straight week on the Fed’s announcement. The euro’s rally was the most since July as the regional economy emerges from a record-long recession and German Chancellor Angela Merkel stands for re-election today.
“The market has really been twisted back and forth by the Fed this week,” Peter Gorra, the chief dealer in New York at BNP Paribas SA, said in a phone interview on Friday. “With this dovish call, people really had to go to the market to put risk on, which obviously gets ugly in these volatile events.”
The Bloomberg US Dollar Index, which tracks the performance of a basket of 10 leading global currencies against the US dollar, fell 1 percent this week to 1,013.28 in New York. It reached 1,006.40 on Thursday, the lowest level on a closing basis since Feb. 20.
The US dollar weakened 1.7 percent to US$1.3524 per euro. It was little changed at ￥99.36. Japan’s currency lost 1.7 percent to ￥134.37 versus the euro, touching the weakest level since November 2009.
The pound also strengthened for a third week against the US dollar, with the sterling climbing to its highest level in eight months as minutes of the Bank of England’s meeting this month showed British officials saw no need for additional stimulus as the economy improves.
The pound advanced 0.9 percent this week to US$1.6022 as of 5:02pm in London on Friday, but dropped 0.8 percent to ￡0.8440 per euro.