Asian Currency Update

on Jul 26, 2012

The Singapore dollar reached an 11-year high against the Thai baht after Thai Beverage Pcl (THBV), controlled by the Thai tycoon Charoen Sirivadhanabhakdi said in a statement that it had agreed to buy a 22 percent stake in Fraser and Neave Ltd (FNN), as reported by Reuters on 19 July 2012.

Thai Beverage, which operates distilleries in Thailand, China and Scotland, expressed interest both toward F&N and Asia Pacific Breweries in an attempt to expand its market share in Asia’s fast-growing beer business. According to the Financial Times, the company said in a statement to the Singapore exchange that it was “presently in discussions to explore the possibility of acquiring the shareholdings”.

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The Thai Bev takeover speculation sent the Singapore dollar to 25.25068 against the Thai baht, or the highest level since 2001, as reported by Reuters. The prospect for the deal also limited the baht’s gain against the US dollar. In addition, the Thai currency unit faced technical resistance at 31.615 per dollar, the 50.0 percent Fibonacci retracement of its weakening earlier in July. Reuters reports that according to dealers, the baht is unlikely to break through the resistance level soon.

!m[](/uploads/story/204/thumbs/pic1_inline.png)Despite the Singapore dollar gains against the baht, the Asian currency “champion” was South Korea’s won, which according to Reuters outperformed its Asian counterparts due to interest among foreign investors toward South Korean bonds. The won, however, failed to clear a technical resistance level at 1,138.0 per US dollar, a 76.4 percent Fibonacci retracement of the won’s depreciation in early July.

Malaysia’s ringgit, on the other hand, rose against the dollar although it could not extend gains, whereas the Philippine peso started local trade up 0.3 percent but turned lower with players reducing bets on the currency amid speculation about a dollar-buying intervention by the central bank. Bloomberg reported on July 19 that India’s rupee advanced 0.3 percent, while the Chinese yuan was little changed at 6.3700 per dollar, relative to 6.3702 the previous day.

As noted in the Reuters article, the rising of most Asian currencies was due to strong US corporate earnings which improved investors’ appetite for riskier assets. In addition, data showed that groundbreaking on new US homes rose last month, which also fuelled the “risk-on” buying of emerging Asian currencies. Bloomberg reports that, in June 2012, US housing starts gained 6.9 percent, reaching their highest level since 2008.
According to Bloomberg, speculation about stimulus measures from China also contributed to the strengthening of Asian currencies. China, whose economy expanded 7.6 percent last quarter or the slowest pace in more than three years, has room to boost fiscal spending to spur growth. Bloomberg quotes Zhang Peng, a researcher with the Fiscal Research Institute at the Ministry of Finance in Beijing, who noted in an interview that China needed to adopt a “moderately easing” policy in the case of growth below eight percent.


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