Asian Currencies Gain in Week as China Allows Yuan Appreciation

Asian currencies advanced for a second week amid signs China will allow the yuan to resume appreciation and on optimism monetary easing in Europe will spur fund flows into higher-yielding assets.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, rose 0.1 percent in the past five days after the European Central Bank cut its deposit rate last week to minus 0.1 percent. The yuan had its best five-day gain since 2011 as the People’s Bank of China boosted its reference rate by 0.19 percent since June 6, the most since December, to 6.1503 per dollar.

“When the ECB started the ball rolling with negative rates, that accentuated the search for carry and that has brought some of the flows into Asia,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “China has started appreciating its currency after a prolonged period where the yuan was depreciating.”

The yuan rose 0.6 percent from June 6 to 6.2107 per dollar yesterday in Shanghai, according to China Foreign Exchange Trade System prices. The Indonesian rupiah climbed 0.3 percent to 11,795, Thailand’s baht advanced 0.2 percent to 32.415 and South Korea’s won strengthened 0.3 percent to 1,017.88.

Overseas investors pumped a net $995.3 million into stock markets in India, South Korea and Taiwan this week, data compiled by Bloomberg show. They added $1.21 billion to holdings of bonds in India and Thailand.

Yuan Rally

The yuan touched a two-month high of 6.2018 per dollar yesterday on speculation the central bank will tolerate gains after the nation’s trade surplus widened. The U.S.-China Strategic and Economic Dialogue will be held in Beijing in early July.

Exports climbed 7 percent from a year earlier in May, official data showed on June 8, compared with growth of 0.9 percent in the previous month and the median estimate of a 6.7 percent gain in a Bloomberg survey. That left a trade surplus of $35.9 billion, almost double the figure for April, as imports unexpectedly fell 1.6 percent.

“Our view is that better economic data and international diplomacy are at play here,” Bank of America Merrill Lynch strategists including Claudio Piron in Singapore and Albert Leung in Hong Kong wrote in a research note yesterday. The stronger yuan fixings “are consistent with some stabilization in macro data,” they said.

The won touched 1,015.25 per dollar on June 10, the highest since August 2008, data compiled by Bloomberg show.

The Bank of Korea left its benchmark interest rate at 2.5 percent for a 13th straight month on June 12 and Governor Lee Ju Yeol said a strong currency hurts the economy, while lowering inflationary pressure.

Elsewhere in Asia, Taiwan’s dollar rose 0.1 percent from a week ago to NT$30.053 against its U.S. counterpart. Malaysia’s ringgit fell 0.2 percent to 3.2185, the Philippine peso dropped 0.3 percent to 43.78 and the Indian rupee weakened 1 percent to 59.7725.

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