China will allow the yuan to resume appreciation and on optimism monetary easing in Europe will spur fund flows into higher-yielding assets.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, rose 0.2 percent in the past five days after the European Central Bank cut its deposit rate last week to minus 0.1 percent. The yuan was set for its best five-day gain since 2011 as the People’s Bank of China boosted its reference rate by 0.19 percent since June 6, the most since December, to 6.1503 per dollar.
“When the ECB started the ball rolling with negative rates, that accentuated the search for carry and that has brought some of the flows into Asia,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “China has started appreciating its currency after a prolonged period where the yuan was depreciating.”
The yuan rose 0.72 percent from June 6 to 6.2056 per dollar as of 10:52 a.m. in Shanghai, according to China Foreign Exchange Trade System prices. The Indonesian rupiah climbed 0.4 percent to 11,790, while the South Korean won strengthened 0.3 percent to 1,017.85.
Overseas investors pumped a net $1.1 billion into stock markets in India, South Korea and Taiwan so far this week, data compiled by Bloomberg show. They added $901 million to holdings of bonds in India and Thailand.
Yuan Rally
The yuan touched a two-month high of 6.2056 on speculation the central bank will tolerate gains after the nation’s trade surplus widened. The U.S.-China Strategic and Economic Dialogue will be held in Beijing in early July.
Exports climbed 7 percent from a year earlier in May, official data showed on June 8, compared with growth of 0.9 percent in the previous month and the median estimate of a 6.7 percent gain in a Bloomberg survey. That left a trade surplus of $35.9 billion, almost double the figure for April, as imports unexpectedly fell 1.6 percent.
“Our view is that better economic data and international diplomacy are at play here,” Bank of America Merrill Lynch strategists including Claudio Piron in Singapore and Albert Leung in Hong Kong wrote in a research note today. The stronger yuan fixings “are consistent with some stabilization in macro data,” they said.
The won touched 1,015.25 per dollar on June 10, the highest since August 2008, data compiled by Bloomberg show.
The Bank of Korea left its benchmark interest rate at 2.5 percent for a 13th straight month yesterday and Governor Lee Ju Yeol said a strong currency hurts the economy, while lowering inflationary pressure.
Elsewhere in Asia, Taiwan’s dollar rose 0.3 percent from a week ago to NT$29.999 per dollar, Thailand’s baht advanced 0.1 percent to 32.436, while Malaysia’s ringgit was little changed at 3.2108. The Philippine peso dropped 0.4 percent to 43.810, while the Indian rupee fell 0.1 percent to 59.255 yesterday.
To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Anil Varma, Andrew Janes
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