Economist Shayne Heffernan takes a look at the week ahead on Asian Currencies.
The Thai Baht
The Baht is expected to stay in the 31 - 31.5 range this week, The Bank of Thailand kept its benchmark interest rate at 3 percent. Three forecast a 25 basis point cut. Global funds bought $39 million more Thai equities than they sold in the first three days of this week, exchange data show.
China has introduced reforms to increase the use of its yuan in global trade and investment, Beijing has imposed stringent restrictions and the process of buying its government debt is viewed as extremely complicated.
In March Japan struck a deal to invest 65 billion yuan ($10bn) in China's sovereign debt, although the deal had to be approved by Beijing.
South Korea's central bank has also been given the green light to buy 20 billion yuan.
The Bank of Thailand has been trying to increase its holdings, while Bank Indonesia also reportedly wants to buy China's government debt.
But seeking such deals is considered to be extremely complicated and it is only recently that Beijing has started opening the market to other central banks, such as the Reserve Bank. "You couldn't buy them. They just wouldn't let foreigners buy them. That change is only in the past two years," an industry source said.
Experts say a key obstacle is that the market for sovereign yuan bonds is not deep or liquid enough, given that China regulates the yuan so it cannot be easily exchanged, and the bond market is considered underdeveloped.
The SGD is a must own currency, Singapore has maintained its position as the world's second most competitive economy, missing out on top spot to Switzerland which kept the title for the fourth year running, the World Economic Forum (WEF) said in its annual survey on Wednesday.
The study by the WEF, best known for running the annual meeting of world business leaders at the ski resort of Davos, ranks 144 countries by examining 113 indicators culled from official data sources and a poll of 15,000 executives who opine on the country where they do business.
Switzerland pipped Singapore to the top spot thanks to strong scores in areas such as innovation, labour market effiency and effective public institutions.
The US fell from fifth spot to seventh because of political and economic problems that detracted from its status as a global powerhouse of innovation, the study said.
"We see this development as a result of the growing macroeconomic imbalances in the country but also due to the political deadlock that has been augmenting the problem of macroeconomic imbalances," said Ms Margareta Drzeniek, a senior economist at the Geneva-based organisation.
"There does seem to be an inability to take decisions on the political side." Rather than a big shake-up in the rankings, the 2012 survey found deepening divides, she said.
"One of the reasons those persistent divides are not being closed - and the prime example here is Europe, or the United States as well - is because of the political deadlock that we've observed, that has prevented those countries from taking a longer term approach to improving competitiveness with a view to stabilising growth in the future."
Interbank speculators lifted the Philippine peso to 41.70 per dollar, the local unit's strongest since Aug. 6, Traders cut optimistic bets on the peso before the U.S. job data and Chinese indicators, although the best performing emerging Asian currency this year is seen staying firm, dealers said.
The ringgit rose 0.3 percent, while traders took profits before the U.S. and China data. A Kuala Lumpur-based dealer said few investors wanted to add ringgit holdings when it was firmer than 3.1100 per dollar, given a slowing global economy.
Malaysia's trade surplus slumped to its smallest in more than a decade as exports to Europe and China fell sharply, data showed on Friday. The dealer said a comment from rating agency Standard & Poor's on the country may also weigh on the ringgit.
On Wednesday, S&P said it may lower the sovereign ratings if the government can't deliver the reform measures to reduce its fiscal deficits and increase the country's growth prospects.
For the week just-ended, the ringgit was traded between 3.1080 and 3.1195, benefiting from the return of risk appetite and on the weakness of the greenback.
The market reacted positively to the European Central Bank's announcement that it would undertake unlimited, short-dated bond purchases to ease funding pressures on governments struggling to manage their debts.
This announcement boosted demand for the euro and Asian currencies, including the ringgit, at the same time diminished investors' confidence in the safe-haven currency.
On Thursday-to-Friday basis, the ringgit rose against the greenback to 3.1100/1150 from 3.1245/1285.
The won advanced to 1,129.0 per dollar, its strongest since Aug. 14, but South Korean importers bought dollars for payments, cutting its gains.
Offshore funds also joined the importers, especially when the local unit was firmer than 1,130, dealers said. Those dollar bids came even after Fitch raised South Korea's government bond rating to AA- from A+, rating the country a notch above China, Japan and Taiwan.
"Despite some fluctuations tracking the euro, it is right to buy dollars below 1,130," said a senior foreign bank dealer in Seoul.
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.
Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.Read the Terms of Service