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  1. #1
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    Asian Central Banks Intervene as Currencies Rise

    Asian Central Banks Intervene as Currencies Rise
    ARRAN SCOTT, ARIES POON and DITAS LOPEZ
    —Joy Shaw in Shanghai, Min-Jeong Lee in Seoul and Ankur Relia in Kuala Lumpur contributed to this article.
    DECEMBER 30, 2010

    SINGAPORE—Central banks in South Korea, Malaysia and Thailand intervened in foreign-exchange markets Thursday as Asian currencies surged against the dollar on optimism about the region's economic outlook, underscored by strong economic data from China and signals that the yuan will continue to strengthen.

    Taiwan, meanwhile, unveiled measures to buttress its banking system against rapid movements in foreign capital, the latest Asian country to introduce stricter regulations to control the risks posed by such capital flows.

    The currency moves were exaggerated by thin trading conditions, with many investors away for year-end holidays. But traders said an upward trend for most Asian currencies appears set to continue, with China's decision to guide the yuan to a modern record against the dollar cementing the bullish sentiment.

    "People are making a bet that growth in emerging markets will still be on an uptrend and that currencies will continue with their appreciation," said Lum Choong Kuan, head of fixed-income research at CIMB Group in Kuala Lumpur. "With the debt crisis in Europe and with the U.S. still showing protracted slow growth, investors will have no other place to put their money but here."

    Capital has been flooding into Asia this year, helping to finance investments in one of the world's fastest-growing regions. But the influx of foreign money has raised concerns in Asian capitals about the perils of fast-moving capital flows, given the damage the region's economies suffered during the Asian financial crisis of the late 1990s, when a previous boom ended suddenly and foreigners rushed for the exits.

    Fresh data Thursday from China, the powerhouse of the Asian economy, showed manufacturing growth eased slightly in December but was still at relatively high levels. The HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell to 54.4 in December from 55.3 in November; any reading above 50 indicates expansion.

    Hongbin Qu, HSBC's chief economist for China, said that despite the moderation in the PMI inflation remains Beijing's top policy concern, rather than economic growth.

    He expects China to take further tightening measures to curb inflation--which hit 5.1% in November--including additional modest interest rate hikes. China's central bank raised interest rates Dec. 25, its second hike in less than three months.

    CIMB's Mr. Lum said central banks in emerging markets are looking at tightening monetary policy next year, which means interest-rate differentials between emerging markets and the developed economies of the U.S., Europe and Japan should grow wider. That leaves Asian central banks looking for ways to control inflows of capital chasing higher returns.
    In Kuala Lumpur, traders said Malaysia's central bank was suspected of buying dollars to curb a rise in the ringgit, which hit a three-month high Thursday. Bank Negara Malaysia may have bought dollars around 3.0810-3.0820 ringgit per dollar, dealers said. The dollar was last at 3.0846 ringgit.

    Traders in Seoul said they suspected the Bank of Korea entered the market, buying more than $500 million at several intervals between 1,135 and 1,140 won per dollar. The dollar closed at 1,134.80 won, bringing the won's gains to 2.6% for the year.

    In Bangkok, the dollar was last at 30.15 baht—down from 30.16 baht late Wednesday—with suspected buying by the central bank around that level to limit the downside, two dealers said.

    "I don't think the dollar/baht will move much on the final trading day of this year, especially with the central bank supporting the pair," one Bangkok-based dealer said.

    In Taipei, which has been trying to temper gains in the New Taiwan dollar—a favorite among investors seeking exposure to China, given Taiwan's increasingly close economic ties to the mainland—the Central Bank of the Republic of China (Taiwan) announced new measures to control capital flows.

    Starting Saturday, local banks will have to set aside 90% of foreign investors' new deposits as reserves, a leap from the current level of 9.775%.

    The central bank also raised its benchmark interest rate by 0.125 percentage point, the third increase this year, as it seeks to normalize lending costs and cool a sizzling property market. Central bank Governor Perng Fai-nan said inflation will likely accelerate next year.

    Also Thursday, Taiwan's financial regulator also said it will inspect banks' use of foreign funds to determine whether there has been speculative trading in the local currency. The Central Bank of the Republic of China (Taiwan) said earlier in the day that it had found "unusual" trading strategies at a small number of banks.

    "Over the past few days, a small number of authorized foreign-exchange banks have targeted specific times of the day to sell off large quantities of foreign exchange," the central bank said in a statement.

    "Our inquiry has revealed that the funding for these transactions originates exclusively from the inward remittance made by certain foreign investors," the bank said, adding that it "asked the authorities concerned to probe into the final beneficiaries behind these foreign investors."

    The central bank didn't name the banks in question or give details on the timing of the trades.

    It isn't unusual for Asian central banks to intervene in foreign-exchange markets when volatility in their currencies rises. Many have taken regulatory steps in recent months to try to slow capital inflows and make their banking systems more resilient to movements in foreign funds.

    Indonesia's central bank said Wednesday that it would increase the amount of reserves commercial banks must hold at the central bank against foreign currency deposits, among other steps. Also Wednesday, South Korea said it would announce lower ceilings on banks' foreign-exchange forward positions in January.

    For many countries, the main consideration has been to make sure their currencies don't rise so much that they hurt export industries. Still, stronger currencies would reduce the cost of imports, tempering inflationary pressures that are on the rise regionally on surging commodities prices. For that reason, many economists expect authorities to permit their currencies to rise further.

    An official at the People's Bank of China Thursday echoed that sentiment, saying that a small, gradual appreciation in the yuan presents more benefits to the Chinese economy than costs.

    In an article in the Financial News, a newspaper published by the central bank, Sheng Songcheng, director of the PBOC's Statistics and Analysis Department, said the yuan's rise against the dollar since the exchange rate was made more flexible has had only a small impact on employment and growth. At the same time, Mr. Sheng wrote, the yuan's gradual rise has cut import costs, reduced inflationary pressures and prompted Chinese companies to become more competitive.

    The yuan has appreciated 3.4% since June 19, when China pledged to increase the currency's trading flexibility, effectively ending a two-year-long peg to the dollar.

    The State Council, China's cabinet, has the final say on major policies such as yuan reform. But Mr. Sheng's article, which featured prominently in the central bank-run newspaper, may reflect growing confidence that Beijing can allow the yuan to rise further without severe consequences.
    The dollar fell to a record low against the yuan Thursday after the PBOC, which tightly controls the currency, set the dollar/yuan parity rate at an all-time low of 6.6229, down from Wednesday's rate of 6.6247. It marked the eighth straight session that the central bank has set the parity rate lower.

    In the over-the-counter market, the dollar was at 6.6008 yuan late Thursday, down from Wednesday's close of 6.6212 yuan. The dollar traded Thursday between 6.6000 yuan—its lowest intraday level since the yuan began regularly trading in 1994—and 6.6232.

    The impact of yuan demand from bank customers was exaggerated by the thin year-end trading, one Shanghai-based trader at a local bank said.
    "The market is rather one-sided right now," he said. "The yuan's gain today is definitely bigger than what people had anticipated."

    Elsewhere, the U.S. currency also fell against its major rivals, as U.S. Treasury bond yields fell overnight following strong demand at a seven-year auction, again exaggerated by a thin market. The dollar slipped to a seven-week low of 81.28 yen and a fresh all-time low of 0.9418 Swiss franc.

    The dollar also was weaker against its Australian and New Zealand counterparts: The Aussie surged to a post-float high of $1.0197 intraday, and the Kiwi dollar rose to a high of 76.91 U.S. cents.

    Many participants "dumped quite a few (U.S.) dollars," said Satoshi Tate, senior vice president of the forex division at Mizuho Corporate Bank.

    online.wsj.com

  2. #2
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    Fairly soon, these Asian central banks will be doing just the opposite. They will be selling dollars to lower inflation.

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    This is the part I like:

    Capital has been flooding into Asia this year -
    But the influx of foreign money has raised concerns in Asian capitals about
    the perils of fast moving capital flows -
    When a previous boom ended suddenly and foreigners rushed for the exits.

    So what are the chances this could happen again
    Last edited by ssidewineder; 31-12-2010 at 03:23 PM.

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    Quote Originally Posted by ssidewineder View Post
    This is the part I like:

    Capital has been flooding into Asia this year -
    But the influx of foreign money has raised concerns in Asian capitals about
    the perils of fast moving capital flows -
    When a previous boom ended suddenly and foreigners rushed for the exits.

    So what are the chances this could happen again
    Pretty slim, as the money is for the most part the accumulated earnings of Asian exporters.

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    I have no idea what percent of foreign capital in Asia is that accumulated from
    exports . And what percent is from financial speculation from the Western countries,
    thanks in part to quantitative easing. But it is common knowledge there is alot of
    foreign inflows flooding into Asian asset markets in bonds, properties and securities .
    Last edited by ssidewineder; 31-12-2010 at 03:25 PM.

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    bonds and stocks more likely, the smart asian are putting their money into USD or EURO since it's undervalued and change their risk exposure to their local currency.

    why would you want to be overweight in your own currency ?
    Last edited by Butterfly; 31-12-2010 at 12:38 PM.

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    Quote Originally Posted by ssidewineder View Post
    This is the part I like:

    Capital has been flooding into Asia this year -
    But the influx of foreign money has raised concerns in Asian capitals about
    the perils of fast moving capital flows -
    When a previous boom ended suddenly and foreigners rushed for the exits.

    So what are the chances this could happen again
    Thailand is a creditor nation, just the opposite of its debtor status in 1997

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    Quote Originally Posted by Butterfly View Post
    bonds and stocks more likely, the smart asian are putting their money into USD or EURO since it's undervalued and change their risk exposure to their local currency.

    why would you want to be overweight in your own currency ?
    Here you go, bullish on Thailand one day, bearish the next day.

    The fucking retarded Thais are putting their money in debtor nation currencies with trade deficits like the US dollar.

    Putting money in US dollars now is allot like buying Thai baht in 1996.

  9. #9
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    Quote Originally Posted by ssidewineder View Post
    I have no idea what percent of foreign capital in Asia is that accumulated from
    exports . And what percent is from financial speculation from the Western countries,
    thanks in part to quantitative easing. But it is common knowledge there is alot of
    foreign inflows flooding into Asian asset markets in bonds, properties and securities .
    You are looking at it the wrong way.

    It doesn't really matter where the money is coming from, it matters where the value is being created and that is in Thailand. A buyer needs a seller, if capital is entering, some is likely leaving maybe to other markets like South Africa, Norway, Switzerland or Japan. The west is not the only game in town.

    Remember, Asia is the creditor this time, not the debtor.

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