Asian Currencies Set for Best Week in Seven Months on Inflows

Asian currencies headed for their best week in seven months as Japan’s monetary easing spurred inflows into the region’s assets, and China’s central bank said it would widen the yuan’s trading band.

The Chinese currency rallied the most this week since March and traded 0.1 percent off the 19-year high of 6.1723 reached on April 17, the same day state-run media reported the limit would be expanded. The baht retreated from a 16-year high today after Thailand’s central bank Governor Prasarn Trairatvorakul said the currency has started to move beyond its fundamentals. Global funds bought $1.7 billion more local sovereign notes than they sold this month, Thai Bond Market Association data show.

“Foreign direct divestment is particularly strong in Southeast Asian countries like Thailand, as the return on assets is high,” said Boon Peng Ooi, who oversees $20 billion as the chief investment officer of fixed income at Eastspring Investments Singapore Ltd. “We continue to see moderate gains in Asian currencies.”

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies, rose 0.5 percent this week to 117.98 as of 4:22 p.m. in Hong Kong, the most since the period ending Sept. 14. South Korea’s won strengthened 1.2 percent to 1,116.30, the baht climbed 1.4 percent to 28.65 per dollar and the yuan advanced 0.2 percent to 6.1782.

Beyond Fundamentals

The Bank of Japan said April 4 it would buy 7.5 trillion yen ($76 billion) of bonds per month. BOJ board member Ryuzo Miyao said yesterday he expects investors based in the world’s third-largest economy to buy more foreign debt. Thai central bank Governor Prasarn Trairatvorakul said the baht, which has strengthened 6.8 percent against the dollar in Asia’s best performance this year, has started to move beyond its fundamentals.

“The amount of inflows into Thai bonds is so big, while there is growing speculation Japanese investors will send more money abroad,” said Shigehisa Shiroki, chief trader on the Asian and emerging-markets team at Mizuho Corporate Bank Ltd. in Tokyo. “An economic recovery in Japan due to these policies will also help Thailand, as Japan is one of its major export destinations.”

The won headed for its biggest weekly gain in two months as tensions with North Korea eased after the U.S. agreed to coordinate with South Korea, China and Japan to draw the country into nuclear talks.

The yuan’s trading band is likely to be increased “in the near future,” People’s Bank of China Deputy Governor Yi Gang said April 17 in Washington, where finance chiefs from the Group of 20 nations are meeting to discuss exchange-rate policies.

Yuan Band

The yuan is currently allowed to fluctuate a maximum 1 percent either side of the central bank’s daily fixing. The last expansion took effect on April 16, 2012. UBS AG said in a research note yesterday the next move may be announced by Sunday to coincide with the first anniversary as well as the G-20 talks. JPMorgan Chase & Co. said a revision is more likely in 2014.

“It’s not a good time to widen the trading band given that capital inflows are big and pressure is on the appreciation side,” Zhu Haibin, JPMorgan’s chief China economist, said yesterday in an interview in Shanghai. “If you widen the trading band now, it will trigger more capital inflows and people would expect further appreciation.”

Elsewhere in Asia, Taiwan’s dollar rallied 0.5 percent this week to NT$29.813 against its U.S. counterpart. The Philippine peso rose 0.5 percent to 41.06, Indonesia’s rupiah was steady at 9,713, while Vietnam’s dong slipped 0.2 percent to 20,900. India’s rupee strengthened 1 percent to 53.9725 through yesterday. Financial markets are closed in the country today for a public holiday.

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