Malaysia’s ringgit led a surge in Asian currencies, climbing the most since the 1998 regional financial crisis, after the Federal Reserve unexpectedly refrained from cutting monetary stimulus.
Fed Chairman Ben S. Bernanke stressed yesterday the pace of bond buying, which was kept at $85 billion a month, would depend on economic data and the central bank has no predetermined schedule for tapering measures that have fueled demand for emerging-market assets. Analysts polled by Bloomberg predicted a $5 billion cut to purchases of Treasuries. The ringgit jumped the most since 1998, while the baht was set for the biggest gain in more than six years. The yield on 10-year U.S. Treasuries dropped 16 basis points yesterday, the most since October 2011.
“You have got to go with the flow at the moment,” Mitul Kotecha, the global head of foreign-exchange strategy at Credit Agricole SA in Hong Kong, said in a Bloomberg Television interview. “You have to buy currency risk assets,” he said, after writing in a note today that the ones in Asia that have the strongest correlations to U.S. yields are Indonesia’s rupiah, the baht, the ringgit and India’s rupee.
The ringgit strengthened 2.5 percent to 3.1543 per dollar as of 4:13 p.m. in Kuala Lumpur, the most since September 1998, according to data compiled by Bloomberg. The rupee climbed 2.4 percent to a one-month high of 61.8575. The baht rose 2.3 percent to 30.9480 and the rupiah rallied 1.7 percent to 11,283, its best performance since May 2012. Financial markets are closed for holidays in China, South Korea and Taiwan.
The rupiah is Asia’s biggest loser this year, having tumbled 15 percent against the dollar, while the rupee lost 9.6 percent. The region’s emerging-market currencies slid in the last four months after the Fed signaled plans to rein in asset purchases, a policy known as quantitative easing.
Markets “overreacted to the initial trial balloons from the Fed about the taper process, markets are probably now going to overreact to the Fed not tapering,” said Ray Farris, the Singapore-based global head of currency strategy at Credit Suisse Group AG. “The lesson that I think people should take away from the experience of the past 24 hours is the data will direct the Fed; they will not allow rhetoric to bind them to a decision that runs contrary to the data.”
Global funds were boosting holdings of Asian assets in the run-up to yesterday’s Fed announcement and this trend is likely to be “reinforced” in coming trading sessions, according to Kotecha and Emmanuel Ng, a strategist at Oversea-Chinese Banking Corp. in Singapore. Overseas investors pumped some $10.5 billion into equities in South Korea, Taiwan and India this month, after net sales of about $500 million in August.
One-month non-deliverable forwards on South Korea’s won climbed to an eight-month high of 1,073.60 per dollar today. The yuan rose to a record 6.1042 in Hong Kong’s offshore market, while non-deliverable forwards due in 12 months strengthened as much as 0.24 percent to an all-time high of 6.1905.
“There is a big rebound in reaction to the Fed,” said Pareena Phuangsiri, a Bangkok-based analyst at Kasikornbank Pcl. (KBANK) “I would say it’s very dovish. But even though the Fed didn’t taper this time” they will do so eventually, she said.