Asian currencies jump on Fed shift

TAIPEI: Asian currencies posted their biggest weekly advance since 2012, led by the Chinese yuan, after the US Federal Reserve indicated it was in no hurry to raise interest rates.

A gauge of dollar strength fell the most in 20 months this week as Fed officials signalled borrowing costs would rise at a slower pace than previously forecast and Chair Janet Yellen said the central bank would remain “highly accommodative” even after it starts increasing rates. The median estimate for the federal funds rate at end-2015 was cut to 0.625%, from 1.125% in December forecasts. The dollar gauge is still up 18% in the past year.

“While the dollar continues to be strong, I don’t think it’s going to rise at the same pace as before,” said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. “The fundamentals in Asia are still quite strong” and inflows into some regional bond and equity markets have “still been quite strong”, he said.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies excluding the yen, climbed 0.7% from March 13, the most since September 2012. The yuan advanced 0.9% in Shanghai, the Indonesian rupiah jumped 0.6% in its biggest weekly gain in two months and the South Korean won rose 0.5%.

South Korea drew $1.3 billion of equity inflows last week, the most since August, while Taiwan and Thailand also recorded net share purchases by global funds. Overseas investors also bought bonds in South Korea and India.

The yuan recorded its biggest weekly gain since 2007. The Chinese government will ensure economic expansion, while pressing ahead with reforms and increasing the yuan’s convertibility under the capital account, Premier Li Keqiang said recently. The People’s Bank of China (PBOC) raised the yuan’s reference rate by 0.15% from March 13 after cutting it for five weeks in a row.

“We have also seen the PBOC intervening quite aggressively,” said Eddie Cheung, a foreign-exchange strategist at Standard Chartered in Hong Kong. “They don’t want to see depreciation expectations become too entrenched.”

The Malaysian ringgit bucked the trend by shedding 1.3% last week as crude prices slid to a six-year low, reducing earnings for the oilexporting economy. A deteriorating current-account surplus exposes Malaysia to volatility in investor sentiment, said Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch Ratings, adding that the country’s credit rating was “more than 50% likely” to be downgraded.

Elsewhere in Asia, the Thai baht rose 0.6% last week, the Indian rupee climbed 0.7% and the Taiwanese dollar appreciated 0.5%. The Vietnamese dong lost 0.4% and the Philippine peso dropped 1.2%.