Won Leads Asian Currencies’ Weekly Advance on U.S. Budget Deal

South Korean’s won led gains in Asian currencies this week after the U.S. averted $600 billion of tax increases and spending cuts, easing the risk of a slowdown in the world’s largest economy.

The Bloomberg-JPMorgan Asia Dollar Index touched a 16-month high on Jan. 3 and regional stocks rallied 1.8 percent in the last four days of the week after Congress passed a bill on Jan. 1 that makes the George W. Bush-era income-tax cuts permanent for most workers, while letting them expire for top earners. Regional currencies fell yesterday after minutes of a Federal Reserve meeting in Washington indicated a probable end to the monetary authority’s bond-buying program this year.

“Emerging-market assets had a strong start to 2013 after the U.S. Congress passed legislation delaying the fiscal cliff issue,” said Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong. “Risk remains to the upside for Asian currencies given positive momentum in the equity market.”

The won appreciated 0.6 percent this week to 1,063.68 per dollar at the close yesterday in Seoul, according to data compiled by Bloomberg. Malaysia’s ringgit advanced 0.3 percent to 3.0525 and Thailand’s baht climbed 0.3 percent to 30.52. The Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, was little changed.

The MSCI Asia Pacific Index of regional shares rose to a 17-month high yesterday after international funds pumped $1.1 billion into Indian, Taiwanese and South Korean stocks this week, exchange data show.

Weekly Gain

The ringgit had its biggest weekly gain since November before data due Jan. 9 that is forecast to show the nation’s exports increased 2.1 percent in November, compared with a 3.2 percent decline the month before.

U.S. lawmakers may need to approve an increase in the $16.4 trillion debt ceiling as early as mid-February.

“The resolution of the fiscal cliff issue helped partly to remove concerns about a global slowdown but it’s not a permanent solution,” said Andy Ji, a Singapore-based foreign-exchange strategist at Commonwealth Bank of Australia.

Chinese data released this week indicated a recovery in the region’s largest economy may be gathering pace. A non-manufacturing purchasing managers’ index was at a five-month high of 56.1 in December, the National Bureau of Statistics and China Federation of Logistics & Purchasing said on Jan. 3. A report released Jan. 1 showed the manufacturing PMI was 50.6 during the same period, equal to November’s level that was the highest since April.

The yuan strengthened 0.03 percent to 6.2303 per dollar from Dec. 28. Mainland financial markets were closed from Jan. 1 through Jan. 3 for public holidays.

Fed Buying

“The world industrial cycle steadily improved through December with China and the U.S. leading the way, but smaller economies like Korea and Taiwan are bouncing back,” Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong, wrote in a note released Jan. 3.

Fed policy makers said they will probably end their $85 billion monthly debt purchases in 2013, with members divided between a mid- or end-of-year finish, according to the minutes of the Federal Open Market Committee’s Dec. 11-12 meeting that were released Jan. 3.

“Stopping bond buying will hurt investor confidence in the market,” said Samson Tu, a Taipei-based fund manager at Uni-President Assets Management Corp., which oversees $700 million. “Investors doubt whether the U.S. recovery is strong enough to warrant an end to quantitative easing.”

Elsewhere, the Philippine peso advanced 0.4 percent this week to 40.905 against the greenback. Taiwan’s dollar was little changed at NT$29.125, India’s rupee slipped 0.5 percent to 55.0750, Indonesia’s rupiah fell 0.2 percent to 9,660, while Vietnam’s dong was steady at 20,843.

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