Rupee heads for best performance in 10 years

Singapore: The rupee is headed for its best monthly performance in at least 10 years, leading gains in most of regional peers in January, boosted by inflows into the region’s stock and bond markets in the new year.

Fading concerns about the European debt crisis, on signs of progress in resolving the problem, helped boost Asian stocks this month, helping attract more investments into Asia.

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The region’s currencies are expected to sustain their gains in February, although there may be some technical correction as investors will continue to worry about Europe until the crisis is decisively resolved.

“It all depends on the situation in Europe. If that was out of the equation, I am quite bullish on Asian currencies,” said Adam Gilmour, head of FX & derivatives sales of Citigroup in Singapore when asked if emerging Asian currencies could extend gains in February.

“But I am worried about short term spikes on negative news out of Europe. So I would gradually enter into bullish Asian currency positions,” Gilmour said.

Some real money investors are returning to Asia but most of them stay reluctant to add Asian assets, given the concerns, he added.

Asian currencies, shares, as well as the euro, rose on Tuesday after Greek Prime Minister Lucas Papademos raised hopes for a deal to be reached this week to avoid a default, although investors are worried about another rescue to Portugal.

In January, the rupee has jumped around 7 percent against the dollar so far, the largest monthly gain, since the last quarter of 2001, according to data available on Thomson Reuters.

The rupees gain follows a 16 percent drop in 2011 on foreign outflows and growing concerns about the current account deficit, making it Asia’s worst performer last year.

The Malaysian ringgit followed the rupee, having 4.1 per cent versus the greenback.

“People are happy playing short dollar/Asia. There will be some corrections (in Asian currencies) but will be very shallow because everybody is waiting to sell the rallies,” said a senior dealer at an Malaysian bank in Kuala Lumpur.

The dealer said real money investors – pension and mutual funds – in the West should be “consolidating their war chest” to prepare for coming to Asia.

Reuters