Asian currencies rallied this week, led by Malaysia’s ringgit and Thailand’s baht, after the Federal Reserve unexpectedly maintained monetary stimulus that’s led to capital inflows to emerging markets.
Fed Chairman Ben S. Bernanke said Sept. 18 more evidence of a recovery in the world’s largest economy is needed before the central bank starts paring its $85 billion a month of bond purchases. Global funds bought $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 Inc. in Tokyo. “But the Fed will eventually trim stimulus, and investors will become more selective. The long-term trend of gradual dollar appreciation may remain intact.”
The ringgit strengthened 4 percent this week to 3.1650 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. The Thai 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.
The Federal Open Market Committee is concerned that the rapid tightening of financial conditions in recent months could damp growth, Bernanke said at a press conference in Washington on Sept. 18. Economists surveyed by Bloomberg were predicting a cut of $5 billion in the Fed’s monthly bond buying.
The Malaysian currency posted its biggest weekly gain since the 1998 Asian financial crisis, helping the FTSE Bursa Malaysia KLCI Index of shares climb 1.8 percent. The U.S. is Malaysia’s fourth-largest overseas market. Shipments rose in July after a five-month contraction.
“We are building up our portfolio to come back to a long position on emerging currencies versus the dollar,” said Philippe Jauer, chief investment officer for global fixed income and currencies in Singapore at Amundi, which oversees about $1 trillion, said in an e-mail interview. “The Philippines, Malaysia and Thailand are the first countries any investor should come back to because the economic fundamentals are much better than in India and Indonesia.”
The Reserve Bank of India unexpectedly raised its benchmark repurchase rate by a quarter percentage point to 7.5 percent yesterday, the first increase since 2011. Governor Raghuram Rajan, who took office two weeks ago, is seeking to rein in inflation that’s 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 S&P BSE Sensex Index of shares fell 1.9 percent, after climbing 4.6 percent in the previous four days.
The rupee and Indonesia’s rupiah have lost 12 percent and 15 percent this year against the dollar, respectively, as investors fled nations with worsening current-account deficits.
“Asian currencies’ strength this week has a lot to do with the Fed’s decision not to taper quantitative easing,” said Nizam Idris, the head of fixed income and currency strategy at Macquarie Bank Ltd. in Singapore. “It gives countries with worsening current accounts more time to get their houses in order.”
Elsewhere in Asia, the Philippine peso rose 1.9 percent this week to 43.037 per dollar. Vietnam’s dong traded at 21,115, unchanged from the end of last week. South Korea’s markets are shut for three days from Sept. 18 for public holidays, while China and Taiwan are closed for two days from Sept. 19. Hong Kong also had a public holiday yesterday.