BLBG:Asian Currencies Gain, Led by Singapore Dollar, on U.S. Rating Downgrade
Asian currencies strengthened, led by the Singapore dollar and Malaysia’s ringgit, on speculation global funds will shift more cash into non-dollar assets after the U.S. lost its top credit rating at Standard & Poor’s.
Singapore’s dollar gained by the most since July 14 and the ringgit rebounded from a three-week low. China’s yuan rallied the most since April after the central bank strengthened its reference rate for the currency by the most this year. Group of Seven policy makers vowed to take “all necessary measures” to support financial stability and growth after S&P cut America’s AAA rating by one level to AA+ on Aug. 5, citing the failure of the political process to address the budget deficit.
“It’s the weak U.S. dollar which is mainly setting the trend for the regional currencies,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo. “With stock markets slumping, money flows into bonds, which is also supportive of the currencies.”
The Singapore dollar climbed 0.5 percent to S$1.2138 versus the greenback as of 10:33 a.m. local time, according to data compiled by Bloomberg. The ringgit appreciated 0.3 percent to to 3.0070 and the Thai baht gained 0.4 percent to 29.78.
Emerging markets may attract funds as they have relatively large foreign-exchange reserves and low debt-to-GDP ratios compared to developed nations, according to Templeton Asset Management Ltd.’s Mark Mobius.
“This improved ability to manage their currencies and historically better ability to service debt is why we believe emerging market currencies have been so strong - and may continue to be,” Mobius, who oversees about $50 billion as executive chairman of Templeton’s emerging markets group, wrote today in comments posted on the Franklin Templeton Investments website.
Bond Inflows
Global funds ploughed more than $1 billion into emerging- market bond funds in the week to Aug. 2, with those focused on local-currency notes recording their best inflows in more than a year, EPFR Global said in an Aug. 5 statement. Singapore has the top rating from S&P, Moody’s Investors Service and Fitch Ratings.
“Investors expect policy interventions to preempt any free-fall in financial markets,” said James Zhao, chief investment officer in the international investment department of CCB Principal Asset Management Co. in Beijing. “These include the speculated QE3, Europe debt consolidation and possibly a moderation in China’s monetary and fiscal tightening after inflation pressure peaked.”
Market Interventions
The European Central Bank said yesterday it will “actively implement” its bond-purchase program to prevent a debt crisis from spreading in the euro zone. Italian and Spanish 10-year yields both reached euro-era records last week, while Greece, Ireland and Portugal have received bailouts from the European Union and International Monetary Fund.
Concern about the safety of U.S. and European assets may spur transfers of funds to Asia. South Korean Vice Finance Minister Yim Jong Yong said yesterday authorities will monitor capital flows and the exchange rate and take prompt action when necessary. The Philippine central bank will stem “excessive volatilities” in the foreign-exchange market and “speed up” reform of the non-deliverable forwards market, Governor Amando Tetangco said in an email today.
South Korea’s won weakened 0.4 percent to 1,071.49 per dollar, while the peso was little changed at 42.60. The won touched a three-year high of 1,048.30 on July 27, while the peso reached 41.903 on Aug. 1, its strongest level since April 2008.
Yuan Fixing
China’s yuan rose 0.2 percent to 6.4267, gaining the most since April 27. The People’s Bank of China fixed the reference rate 0.23 percent stronger at 6.4305 per dollar, the biggest advance since November. The currency is allowed to trade up to 0.5 percent on either side of the official rate.
“This is an attempt to provide a signal of stability and leadership for the region,” said Sacha Tihanyi, a Hong Kong- based senior currency strategist at Scotia Capital, the investment banking unit of Bank of Nova Scotia. It “signals an intention for policy stability and policy continuity for a gradually appreciating renminbi,” he said in an e-mail.
Elsewhere, the Indonesian rupiah advanced 0.5 percent against its U.S. counterpart to 8,533 and the Taiwan dollar rose 0.1 percent to NT$28.989.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net
To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net
