Asian Currencies Rock

Excuse the pun, I'm may be getting up there in age, but I still think I have a sense of humor.

Holidays in Taiwan, China and South Korea closed those local markets but this simply shifted global investors focus to Malaysia, Thailand and Singapore.

The ringgit and baht recorded new 13-year highs, while the Singapore dollar made new record highs. Global investors recognize the attractiveness of Asia based on generally favorable dynamics of relatively strong growth and some growing inflation pressures.

There are also some country-specific developments. Malaysian ringgit for example is the strongest currency in the region, rising almost 11% against the greenback this year. Officials have confirmed they are exploring allowing the ringgit to trade offshore. Thailand does not seem particularly concerned about the baht's strength. It has gained about 8.9% against the dollar this year. Strong foreign inflows have been reported into both the Thai bond and stock markets. In Singapore's case US hedge funds are thought to have been the driving force amid talk of positioning ahead of the road show that should start tomorrow for GIC's Global Logistic Properties' IPO (seeking to raise ~$3 bln).

There has also been talk earlier today that officials of several countries in the region, either directly or indirectly may have intervened to slow the appreciation of their currencies. Although a number of press reports play up the possibility that BOJ intervention will encourage others to intervene, we are skeptical. Many countries in the region intervened appeared to intervene before the BOJ, which has been out of the market for half a dozen years. The intervention proceeds are expected to be recycled mostly into US Treasuries. Some of this might be picked up by the Fed's custody holdings in the next week or two.

China's yuan has appreciated noticeably since the beginning of the month. It is up now 1.8% on the month. Although this is a bit faster than some regional currencies, there does not appear to be a domino effect going on, where an acceleration of CNY appreciation triggers the advances in the others. Instead, it looks as if, at least in part, that the appreciation of China and the other local currencies is responding to the same macro economic considerations--stronger growth, prospect of higher interest rates and global capital flows.