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Emerging Asia FX-Multi-week highs on fund inflows, yuan

Written by: Staff

SINGAPORE, Oct 27 (Reuters) Most Asian currencies scaled multi-week highs to the U.S. dollar on Friday, propped up by foreign investment flows into Asia, the Chinese yuan's continued rises and the weakness in the U.S. currency.

The Chinese yuan's rise to 7.8871 per dollar, its highest level since its revaluation in July 2005, helped boost Asian currencies across the board.

The Singapore dollar was quoted at 1.5659/68 to the U.S. dollar, hovering near a 5-month peak of 1.5655 hit overnight, with the market wary of any intervention by the Monetary Authority of Singapore.

The Malaysian ringgit was at a seven-week high of 3.6525/55, propped by huge foreign inflows into Asian assets.

Analysts said portfolio investment inflows into Asia could increase after Chinese lender Industrial&Commercial Bank of China's solid trading debut on Friday following its record US billion IPO.

''It's blue sky ahead for risky assets. What's driving the Asian currencies is confidence sensitive portfolio flows into regional equity markets,'' said Tim Condon, ING Bank's regional economist and strategist.

''The trend is your friend in this case,'' he said, adding the Asian currencies would continue to appreciate until the end of the year.

The South Korean won hit a three-week high of 946.0 to the U.S.

dollar. Besides the broad regional factors, it was supported by Bank of Korea Governor Lee Seong-tae's remarks that the neutral level of benchmark interest rates should be higher than the current 4.50 percent.

The Thai baht climbed to 36.87 to the U.S. dollar, the strongest level since January 2000, while the Indonesian rupiah was at 9,065 per U.S. dollar, strongest since Sept. 6.

The U.S. dollar was under some pressure as the market priced in expectations the Fed would continue to keep rates on hold after it kept rates steady for a third straight meeting this week.

''The Fed on hold backdrop was read positively for equity markets, foreign inflows and accordingly, regional forex (markets),'' JPMorgan said in a report to clients.

YEN WEAK The yen lagged the rise in most other Asian currencies after softer-than-expected Japanese inflation data. It rose to around 118.44 to the U.S. dollar from 118.74 late in Asian trade the previous session. It, however, hit a record low against the euro.

Japan's core consumer price index in September climbed 0.2 percent from a year earlier, lower than forecasts and sparking expectations that the Bank of Japan could wait until 2007 to raise interest rates.

The weakness in the yen was a hurdle for the rallying Asian currencies, analysts said.

''The story in Japan is capital outflows, given the outlook for the economy as well as financial policies are very supportive of dollar/yen,'' Condon said.

''So it will be difficult for this appreciation of regional currencies to become a real strong trend, given the headwind of well supported dollar/yen,'' he said.


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