Yuan rises as China may widen trading band

ASIAN CURRENCIES ROUND-UP

The Chinese yuan gained, approaching the strongest since a link to the dollar was ended in July 2005, on speculation the nation will widen the currency's trading band.

Asian currencies advanced as global stock markets gained on optimism that a cut in interest rates in the US will support demand for the region's assets.

The Indonesian rupiah rose as investors snapped up shares and the Korean won strengthened due to the outlook on exports. The Malaysian ringgit benefited from the fastest economic growth in three years.

Traders are almost fully pricing in odds that the Federal Reserve will lower borrowing costs next month to prevent the housing market slump and credit losses from pulling the nation into recession.

China will continue to reform the exchange-rate mechanism and "make it more flexible,'' Premier Wen Jiabao said yesterday after holding discussions with European officials visiting Beijing to press for faster yuan gains. A newspaper report this week said that China may widen the trading limit to 0.8 per cent from 0.5 per cent before US Treasury Secretary Henry Paulson visits in December.

"Yuan revaluation expectations are rising ahead of the US-China talks,'' said Yen Ping Ho, senior foreign-exchange strategist at JPMorgan Chase in Singapore. "Market speculation on further yuan gains has stepped up in response.''

The currency rose 0.16 per cent to 7.3824 a dollar as of the 5:30 pm close in Shanghai, from 7.3945 late yesterday, according to the China Foreign Exchange Trade System.

It touched 7.3810 yesterday, the strongest since the dollar link was scrapped.

The central bank fixed the daily reference rate for yuan at 7.3983, the second consecutive day of weakness.

The yuan's value may be adjusted either during Paulson's Beijing visit next month or after the National People's Congress meeting in March 2008, Hong Kong's Ta Kung Pao newspaper reported on November 27.

EU officials at a trade summit in Beijing this week expressed confidence that China will work on trade disparities and opening up its markets.

The Indonesian rupiah strengthened 0.4 per cent to 9,385 against the dollar as of 5:15 pm in Jakarta, according to data compiled by Bloomberg. The won gained 0.3 per cent to 928.70 versus the dollar, according to Seoul Money Brokerage Services. Malaysia's ringgit appreciated 0.3 per cent to 3.3692 a dollar, according to data compiled by Bloomberg.

Goldman Sachs yesterday said selling the dollar against a basket of currencies from Malaysia, Singapore and Taiwan is the top trade in 2008, as Asian central banks allow faster currency appreciation to offset price pressures.

The Asian currencies will also gain as it becomes costlier for the central banks to enter foreign exchange markets, said Jens Nordvig, a senior currency strategist in New York at Goldman Sachs, the world's most profitable securities company.