Big rally in Asian currencies signals 'sell'

The biggest rally in Asian currencies since September is a sell signal to two of the world's largest foreign-exchange trading firms, as the region's economic growth increasingly falls short of forecasts.

The Bloomberg-JP Morgan Asia Dollar Index of 10 currencies has climbed 1.3 per cent over the past month to 118.6, approaching the reading of 118.89 on January 18 that was the highest since September 2011. The South Korean won's 4.6 per cent rise outpaced all currencies in the period, while the Malaysian ringgit is at a 21-month high.

The rise, driven by investor demand for higher-yielding assets as the world's biggest central banks begin a new round of efforts to keep interest rates at record lows, is colliding with slowing Asian export and manufacturing growth.

According to an index drawn up by Citigroup, the region's economies are missing analysts' predictions by the most since July.

Manik Narain, a currency strategist at UBS in London, said: "Across Asia, we're starting to see the slowdown in exports spilling over to weaker domestic demand.

"Asian currencies are starting to look divorced from economic fundamentals. Markets are not looking beyond liquidity. We think that will result in disappointments over the medium term."