Asia Currencies Gain, Led by India, as Fed Easing Spurs Inflows
Bloomberg.com Sep 17, 2012
Asian currencies strengthened as the Federal Reserve’s asset-purchase plan spurred inflows
into the region’s higher-yielding assets. India’s rupee rose to a four-month high after the
government eased investment rules.
International investors increased holdings of Indonesian South Korean, and Taiwanese financial
assets (i.e., money market instruments and stocks) by $1.8 billion on Sept. 14, a day after the
Fed announced it would expand holdings of long- term securities with open-ended buying of $40
billion of mortgage debt per month in a third round of quantitative easing. India’s government
allowed overseas retailers to invest in Asia’s third-largest economy, and said foreign airlines can
own minority stakes in local carriers. The MSCI Asia Pacific Excluding Japan Index (MXAPJ) of
shares rose to a four-month high.
“The QE3 is giving a boost to sentiment and expectations of capital inflows,” said Wee-Khoon
Chong, a fixed-income strategist at Societe Generale SA in Hong Kong. “The boost for the
foreign-exchange rate from QE3 is likely to be temporary,” he said. The risk of India’s reforms
being rolled back, “given past Indian government behavior, is a natural concern,” he wrote in a
separate note to clients.
The rupee strengthened 0.6 percent to 55.97 per dollar as of 2:33 p.m. in Mumbai, according to
data compiled by Bloomberg. Indonesia’s rupiah appreciated 0.1 percent to 9,515 and Taiwan’s
dollar rose 0.2 percent to NT$29.399, touching a four-month high earlier. The Philippine peso
slid 0.5 percent to 41.600, retreating from a four-year high, as some investors judged gains in
the currency as excessive.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s most active currencies,
snapped a four-day rally. The gauge’s 60-day historical volatility rose one basis point, or 0.01
percent, to 3.43 percent.
“It looks like there’s a lot of speculative money coming into Taiwan,” said Tarsicio Tong, a
foreign-exchange trader at Union Bank of Taiwan (2838) in Taipei. “The Taiwan dollar’s surge
was also caused by panic selling of the greenback” (i.e., U.S. dollar) due to speculation the local
currency will strengthen beyond the NT$29 per dollar level, he said.
Policy makers must control volatile capital flows as quantitative easing measures taken in the
U.S. and Europe have a “negative spillover” into developing countries, Bank of Korea Governor
Kim Choong Soo said on Sept. 14. The won added 0.1 percent to 1,115.97 per dollar.
Philippine central bank Governor Amando Tetangco said today that the nation will stay watchful
of inflows and indications of asset-price bubbles, adding the central bank will guard against “any
disruptions” that may lead to sharp foreign-exchange rate fluctuations.