Emerging Asia FX-Rally after Fed holds rates, baht recovers

SINGAPORE, Sep 21 (Reuters) Asian currencies rallied on Thursday against a dollar weakened by the U.S. Federal Reserve's decision to hold interest rates steady, with the South Korean won hitting its highest in more than two months.

The regionals were also helped by the Thai baht's recovery after a military coup ousted Prime Minister Shinawatra's government.

The currency was trading around 37.50/53 per dollar, one percent firmer than Tuesday's low of 37.95, soothed by the central bank's assurance that there were no major capital outflows following the coup.

The won rose half a percent to 945 per dollar while the Indonesian rupiah gained a similar amount to be traded around 9,135/9,140 per dollar.

The Singapore dollar was quoted at 1.5810/20 per dollar, a full cent higher than Wednesday's lows.

The Fed kept its overnight funds rate steady at 5.25 percent, a level reached in June after 17 consecutive rate rises. Its suggestion that inflationary risks may be moderating undermined the dollar against the yen and euro.

''With this, we expect the market to continue to look for yield plays, which will favour the usual Asian currencies such as the rupiah and Philippine peso, helped by calm market reaction to the Thai political crisis and a further fall in oil prices,'' Irene Cheung of ABN AMRO Bank said in a note to clients.

BAHT FINDS SUPPORT The baht found support after army chief General Sonthi Boonyaratglin's ''Political Reform Council'' was legitimised by a royal proclamation.

Traders and analysts said these events would hopefully end months of political impasse, which has been lengthening since the April elections were annulled.

Sonthi said a new prime minister would be chosen within two weeks after which the military would step out. It would take a year to produce a new constitution that would lead to fresh general elections, he said.

''Fundamentally, the market reaction on the baht has been relatively muted so far. This makes sense as the market is taking the view that the military coup is not necessarily bad news in terms of economic reform,'' said Callum Henderson, Standard Chartered Bank head of currency strategy.

''While foreign investors are naturally worried, local investors seem to be taking a relatively sanguine view of this week's events,'' he said.

Thai stock markets were down about 1 percent in early trade on Thursday. Analysts expect a sell-off to be limited with few signs so far foreigners will pull out the more than SINGAPORE, Sep 21 (Reuters) Asian currencies rallied on Thursday against a dollar weakened by the U.S. Federal Reserve's decision to hold interest rates steady, with the South Korean won hitting its highest in more than two months.

The regionals were also helped by the Thai baht's recovery after a military coup ousted Prime Minister Shinawatra's government.

The currency was trading around 37.50/53 per dollar, one percent firmer than Tuesday's low of 37.95, soothed by the central bank's assurance that there were no major capital outflows following the coup.

The won rose half a percent to 945 per dollar while the Indonesian rupiah gained a similar amount to be traded around 9,135/9,140 per dollar.

The Singapore dollar was quoted at 1.5810/20 per dollar, a full cent higher than Wednesday's lows.

The Fed kept its overnight funds rate steady at 5.25 percent, a level reached in June after 17 consecutive rate rises. Its suggestion that inflationary risks may be moderating undermined the dollar against the yen and euro.

''With this, we expect the market to continue to look for yield plays, which will favour the usual Asian currencies such as the rupiah and Philippine peso, helped by calm market reaction to the Thai political crisis and a further fall in oil prices,'' Irene Cheung of ABN AMRO Bank said in a note to clients.

BAHT FINDS SUPPORT The baht found support after army chief General Sonthi Boonyaratglin's ''Political Reform Council'' was legitimised by a royal proclamation.

Traders and analysts said these events would hopefully end months of political impasse, which has been lengthening since the April elections were annulled.

Sonthi said a new prime minister would be chosen within two weeks after which the military would step out. It would take a year to produce a new constitution that would lead to fresh general elections, he said.

''Fundamentally, the market reaction on the baht has been relatively muted so far. This makes sense as the market is taking the view that the military coup is not necessarily bad news in terms of economic reform,'' said Callum Henderson, Standard Chartered Bank head of currency strategy.

''While foreign investors are naturally worried, local investors seem to be taking a relatively sanguine view of this week's events,'' he said.

Thai stock markets were down about 1 percent in early trade on Thursday. Analysts expect a sell-off to be limited with few signs so far foreigners will pull out the more than $2 billion invested in Thailand this year.

Henderson said the charts however suggested further baht weakness.

''Technically, dollar/baht broke out of a descending wedge pattern and may test 38.19 and 38.50 near term,'' he said.

REUTERS BDP SSC1030 billion invested in Thailand this year.

Henderson said the charts however suggested further baht weakness.

''Technically, dollar/baht broke out of a descending wedge pattern and may test 38.19 and 38.50 near term,'' he said.

REUTERS BDP SSC1030