Asian Currencies in Best Weekly Gain Since 2012 on Fed Outlook

Asian currencies had the best week since September 2012, led by Indonesia’s rupiah and India’s rupee, as signs the U.S. economic recovery is losing pace fueled speculation the Federal Reserve will slow further stimulus cuts.

The Bloomberg-JPMorgan Asia Dollar Index rose 0.8 percent in the past five days as concern eased that Russia’s military intervention in Ukraine will prompt a broader conflict. U.S. companies added fewer jobs last month than economists estimated, according to a private report on March 5, while official figures released the same day showed growth in service industries also missed estimates, signaling frigid winter temperatures have caused the world’s largest economy to struggle.

“Overall the U.S. data has been surprising on the downside because of the bad weather,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “This had led to some expectation that perhaps the Fed may be less aggressive in terms of tapering. This has benefited Asian currencies, especially high-yielding ones like the rupiah and the rupee. Risk sentiment improved as the Ukraine crisis cooled.”

The rupiah jumped 1.5 percent this week to 11,440 per dollar as of 4:08 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The rupee climbed 1.2 percent to 61.05, Thailand’s baht rose 0.9 percent to 32.266 and the Malaysian ringgit advanced 0.6 percent to 3.2578.

Capital Inflows

Global funds bought a combined $558 million more stocks than they sold so far this week in India, Thailand, Philippines and Indonesia, while they purchased a net $562 million of bonds in India and Thailand, according to data compiled by Bloomberg.

Fed policy makers are trying to determine whether recent economic weakness stems from harsh weather or fundamental obstacles to growth. At a March 18-19 meeting of the Federal Open Market Committee, they’ll weigh whether to proceed with another $10 billion cut to their debt purchases, which would reduce the monthly pace to $55 billion.

The rupiah rose for a fifth week, the longest winning streak since April 2011, as Indonesia’s improving economy drew overseas capital. Foreign reserves probably rose to more than $102 billion last month, Bank Indonesia Governor Agus Martowardojo said yesterday before official figures due today.

“Rising foreign reserves would indicate an improving external balance,” said Leo Rinaldy, a Jakarta-based economist at PT Mandiri Sekuritas, unit of the nation’s largest lender by assets. “The rupiah’s gains continue to be driven by foreign investors buying local assets on much better confidence.”

Chinese Yuan

The rupee was poised for its best week since December after a report on March 5 showed the nation’s current-account deficit at a four-year low. The Reserve Bank of India reported the shortfall was $4.2 billion in October through December, compared with $5.2 billion in the prior quarter.

China’s yuan had its biggest weekly gain since October on speculation the central bank has ceased engineering a decline meant to discourage inflows driven by one-way appreciation bets.

The People’s Bank of China raised the currency’s daily reference rate today by 0.08 percent, the most since Jan. 24, to 6.1201 per dollar. It may expand the yuan’s trading band this year in small, incremental steps from the current 1 percent, according to a China Securities Journal commentary today. The yuan’s record 1.4 percent drop last month has paved the way for policy changes in foreign-exchange rules and capital-account convertibility moves, it said.

“The government is probably stepping back at the moment and letting the market move” to its preferred level, said Sacha Tihanyi, senior currency strategist at Scotiabank in Hong Kong. “We didn’t expect a depreciation trajectory but more volatility in the currency.”

The yuan strengthened 0.31 percent this week to 6.1260 per dollar in Shanghai, according to China Foreign Exchange Trade System prices.

Elsewhere in Asia, South Korea’s won rose 0.6 percent to 1,060.82 per dollar in the past five days, and the Taiwan dollar gained 0.2 percent to NT$30.302. The Philippine peso advanced 0.6 percent to 44.385, while the Vietnamese dong was steady from a week ago at 21,100.

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