Several Asian currencies surged to multiyear highs Wednesday, prompting some central banks to intervene to curb a broad US dollar sell-off, but Asia’s growing inflation problem means authorities are not likely to try too hard to fight the trend.
Inspired by the US dollar’s drop to a new record low against the euro, investors bid up the Philippine peso, Malaysian ringgit, New Taiwan dollar and others, adding fresh momentum to a long-running upward move in Asian currencies.
The US dollar sank to an eight-year low against the peso, a decade low against the ringgit, and a 33-month low against the New Taiwan dollar, which has led the rally in Asian currencies so far this year. China’s yuan also continued to grind higher.
Central banks in the Philippines, Malaysia and Taiwan entered the foreign exchange market to slow the sudden move upward in their currencies, traders said. Traders were on guard for similar moves in Singapore and Thailand, where the authorities are said to have been quietly placing bids for dollars in recent sessions.
The latest surge in Asian currencies draws strength from two sources: widespread US dollar weakness and a general policy consensus in Asia to fight rising inflation with stronger currencies.
The euro’s rise above the psychologically key $1.500 level in Asian morning trading catalysed bearish sentiment toward the dollar, which has suffered from worries about the US economic outlook and rate cuts by the Federal Reserve, which is eager to keep the economy growing, even, investors fear, at the expense of higher inflation in the US.
On the other side of the equation, Asian central banks have been showing a growing willingness to let their currencies rise in order to tame inflation. Many have long intervened to slow the pace of appreciation of their currencies, which have been driven higher by wide trade surpluses and foreign fund inflows betting on a bright Asian economic outlook. But they have been doing so much less aggressively in recent months as inflation has picked up.
Singapore, which uses its foreign exchange rate as its main policy lever, is a flagship case: Consumer price inflation ran at 6.6 per cent in January, the fastest pace in 25 years, and the Monetary Authority of Singapore has been quietly guiding the country’s currency higher.
In the Philippines, consumer prices surged 4.9 per cent in January, the biggest rise in more than a year, reflecting inflationary pressure from soaring commodities prices. (AP)
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