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Asian currencies gain as US data lifts risky assets

[SINGAPORE] Emerging Asian currencies rose on Wednesday as signs of a recovery in the US manufacturing sector helped ease worries about the outlook for global growth and spurred buying of risky assets.

The Indonesian rupiah, which has been supported recently by bond market inflows, touched a 4-1/2-month high against the dollar. The bid rate rose as high as 13,250, the rupiah's strongest level since mid-October.

The Philippine peso hit a seven-week high of 47.230, pulling away from a six year low of 48.000 set in late January.

Asian currencies have gained a firmer footing this week after China's central bank added to its monetary stimulus by cutting reserve requirements for banks, stoking investors' appetite for risk.

Relatively stable moves in the Chinese yuan, and receding fears about the risk of competitive currency devaluations in the region have also lent support to Asian currencies. A G-20 meeting of policymakers in Shanghai last weekend produced a commitment that no country would devalue their currency in a way that would trigger the outbreak of a currency war.

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"The US ISM numbers yesterday weren't great but they weren't bad either. So dollar/yen has rebounded, and there has been some buying back of Asian currencies as well," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

US manufacturing appeared to stabilise in February. The Institute for Supply Management (ISM) said on Tuesday its index of national factory activity rose to 49.5 last month, the highest reading since September.

However, given the tepid outlook for global growth and emerging market economies, gains in Asian currencies could be short-lived, Brown Brothers Harriman's Murata said.

"When taking a medium-term view I think the more convincing story is for Asian currencies to underperform, rather than outperform against the dollar," he said.


One trader said custodian banks were spotted selling the US dollar against the rupiah, in a possible sign of fund inflows into Indonesian assets.

The rupiah rose in the spot market as well as in Non-Deliverable Forwards (NDFs). In one-month NDFs, the rupiah touched a high of 13,295 versus the US dollar, its highest level since June last year.

Fund inflows to Indonesian bonds have helped lend support to the rupiah recently. Data from Indonesia's finance ministry showed that foreigners held 587.78 trillion rupiah (S$62.08 billion) in Indonesia bonds as of the end of February, up from 578.32 trillion rupiah at the end of January.


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