Asian currencies head for biggest weekly gain on US dollar since 2011 on Fed

TAIPEI (Bloomberg) - Asian currencies headed for the biggest weekly advance since 2011, led by China's yuan, as the Federal Reserve indicated it was in no hurry to raise interest rates.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region's 10 most-traded currencies excluding the yen, climbed 0.9 per cent from March 13, the most since December 2011, as of 11:35 a.m. in Hong Kong. The yuan strengthened 1.2 per cent in Shanghai while Indonesia's rupiah jumped 0.9 per cent to head for its biggest weekly gain in two months. South Korea's won rose 0.6 per cent.

Elsewhere in Asia, Thailand's baht and India's rupee rose 0.7 per cent this week while the currencies of Taiwan and Singapore appreciated 0.5 per cent. Vietnam's dong lost 0.5 per cent and the Philippine peso dropped 1.2 per cent.

Bucking the trend, Malaysia's ringgit declined 0.9 per cent this week as crude prices slid to a six-year low, reducing earnings for the oil-exporting economy. A deteriorating current-account surplus exposes Malaysia to volatility in investor sentiment, Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch Ratings, said March 18, adding that the nation's credit rating is "more than 50 per cent likely" to be downgraded.

A gauge of US dollar strength plunged the most in 20 months this week as Fed officials signaled borrowing costs will rise at a slower pace than previously forecast and Chair Janet Yellen said the central bank will remain "highly accommodative" even after it starts increasing them. The median estimate for the federal funds rate at end-2015 was cut to 0.625 per cent, from 1.125 per cent in December forecasts.

The US dollar gauge is still up 18 per cent in the past year.

"While the dollar continues to be strong, I don't think it's going to rise at the same pace as before," said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. "The fundamentals in Asia are still quite strong" and inflows into some regional bond and equity markets have "still been quite strong," he said.

The yuan was poised for its biggest weekly gain since China ended the currency's peg to the dollar 10 years ago. The government will ensure economic expansion, while pressing ahead with reforms and increasing the yuan's convertibility under the capital account, Premier Li Keqiang said on Sunday. China's central bank has raised the yuan's reference rate by 0.15 per cent from March 13 after cutting it for five weeks in a row.

"We have also seen the PBOC intervening quite aggressively," said Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc in Hong Kong. "They don't want to see depreciation expectations become too entrenched."