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Asian currencies inch up on receding risk aversion

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by August 23, 2017 General

Asian currencies were steady on Wednesday, supported by improving risk sentiment due to easing concerns over geopolitical risks in the region. The dollar index, which tracks the greenback against a basket of six major currencies, was flat on the day at 93.513 after it gained 0.5 percent the previous session.

“Overall theme of receding risk aversion due to either U.S. politics or U.S.-North Korea situation, has boded well for risk sentiment, buoying equities and perhaps supporting inflows into the region,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore.

“Apart from China, most of the equity markets seem to be up. That is acting as a backstop for Asian currencies. The South Korean won led regional gains, up more than a quarter of a percent against the dollar, while the Philippine peso too edged up. The Indonesian rupiah inched down despite a surprise rate cut by Bank Indonesia on Tuesday to stoke lending and consumption. With its first rate cut since October, the Indonesian central bank became the second major Asian economy to cut after India.

“The 25 basis points rate cut is unlikely to matter much at this juncture. We still see downside risks to our 2018 GDP growth forecast,” said DBS bank in a report. “Interesting to see if Bank Indonesia (BI) may follow through with another cut(s) between now and when the U.S. Fed is expected to hike rates in December.”

Capital Economics and ING expect one more cut this year while the latter expects another two more cuts in 2018. Scotiabank said it expected more bond inflows to Indonesia after the rate cut in a report. The Thai baht edged lower after its custom-cleared annual exports fell short of expectations, while the Malaysian ringgit too inched down after Malaysia’s consumer price index rose at a slower pace for the fourth month in a row. Overall, market participants keenly look forward to a meeting of global central bankers in the United States starting later this week for further cues for regional currencies.

MALAYSIA’S FOREX RESERVES

On Tuesday, the central bank said Malaysia’s gross international reserves rose to $100.4 billion as of mid-August, the highest since July 2015. Analysts said the ringgit’s strong performance this year amid dollar weakness helped shore up the country’s reserves. “We have seen strong porfolio inflows supporting and building into the reserves,” said Mizuho Bank’s Varathan. “The BNM did not need to intervene as the dollar trend has been in favour.”

Malaysian bond markets attracted about $3.8 billion of foreign inflows in the second quarter bolstered by regulations allowing non-bank entities to have a net forward position of up to 100 percent of their underlying assets and manage an additional 25 percent of foreign exchange exposure, from May 2. The previous two quarters saw steep outflows as the central bank had asked foreign banks to stop trading ringgit non-deliverable forwards (NDFs), to hedge their exposure to the currency. The following table shows rates for Asian currencies against the dollar at 0552 GMT.

CURRENCIES VS U.S. DOLLAR

Change on the day at 0552 GMT Currency Latest bid Previous day Pct Move

Japan yen 109.420 109.56 +0.13

Sing dlr 1.362 1.3622 +0.01

Taiwan dlr 30.289 30.300 +0.04

Korean won 1130.700 1133.8 +0.27

Baht 33.290 33.22 -0.21

Peso 51.190 51.24 +0.10

Rupiah 13348.000 13341 -0.05

Rupee 64.130 64.10 -0.05

Ringgit 4.280 4.279 -0.02

Yuan 6.662 6.6620 +0.00

Change so far in 2017 Currency Latest bid End 2016 Pct Move

Japan yen 109.420 117.07 +6.99

Sing dlr 1.362 1.4490 +6.38

Taiwan dlr 30.289 32.279 +6.57

Korean won 1130.700 1207.70 +6.81

Baht 33.290 35.80 +7.54

Peso 51.190 49.72 -2.87

Rupiah 13348.000 13470 +0.91

Rupee 64.130 67.92 +5.91

Ringgit 4.280 4.4845 +4.78

Yuan 6.662 6.9467 +4.28

Source: Reuters (Reporting by Patturaja Murugaboopathy in Bengaluru; Editing by Jacqueline Wong)

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