SINGAPORE/SYDNEY: The Singapore dollar led gains in other Asian currencies on Monday, with investors taking higher commodity prices as a green light to rebuild bets on regional emerging currencies, which may keep strengthening especially against the euro.
The Malaysian ringgit, the South Korean won and the Singapore dollar had major reversals higher against the euro late last week after hitting technical support, indicating they have more rooms to rise further versus the euro.
Stretched positioning and worries about Europe's debt problems may keep investors selling the euro against the emerging Asian currencies, whose longer-term economic fundamentals are generally stronger then developed markets, analysts said.
"This is our strong mid-term view, as AXJ will rise against the dollar a bit but euro/dollar is going down this year. So it's better to fund long Asian FX with the euro," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong.
He said the won, the Philippine peso and the Chinese yuan would be good to buy against the euro.
"The Korean won and Philippine peso remain relatively undervalued compared to other regional currencies when compared to pre-global financial crisis levels, and they will be supported by solid growth and rate hikes. The yuan will be allowed to rise relatively fast to curb imported inflation," Kowalczyk added.
Emerging Asian currencies have attracted foreign fund flows on stronger economic recovery and policymakers' efforts to fight inflation as well as amid ample liquidity.
Many dealers have not spotted big flows linked to such cross-flows yet, but Andy Ji, Asian currency strategist and economist with Commonwealth Bank of Australia in Singapore, thinks short euro/emerging Asian FX is a good way to be positioned in the near term.
"We think the USD to strengthen further especially if the retail trade out the US is strong. We also expect the risk sentiment to recover somewhat on a benign mix of growth/inflation data out of China this week," said Andy Ji, Asian currency strategist and economist at .
"Thus, selling EUR/AXJs should still make sense."
The Singapore dollar rose against the US dollar as interbank speculators and leveraged investors bought it after the weekend's general election kept a ruling party in power.
Investors, who had reduced positions in the city-state's currency before the election, started adding the positions again, a US bank dealer in Singapore.
Singapore's ruling party swept back to power as expected in the most contested general election since independence, although the opposition made historic gains and the prime minister signalled there would be change in the tightly governed city-state.
"Government only lost a small number of seats so the market took this as a sign that there wouldn't be any turmoil," said Jonathan Cavenagh, currency strategist at Westpac in Singapore.
The won gained on demand from hedge funds in Singapore and Hong Kong and exporters scooped up the local currency for settlements.
Some exporters bought a small amount of the South Korean currency against the euro, dealers said.
On Friday, dollar/won's 14-day Relative Strength Index (RSI) rose to 47.57, the highest since March 23 though still far from overbought territory.
But the won gave up most of earlier rises as investors covered dollar-short positions with local financial markets set to be closed on Tuesday for the Buddha's Birthday. Importers also bought dollars for settlements, traders said.
One-month dollar/won non-deliverable forward (NDF) was quoted at 1,083.5, implying it is a bit lower than spot dollar/won given the swap points of 2.35.
Euro/ringgit has failed just above the resistance area of 4.3900-4.4100, a series of previous highs going back over the past year, and appears poised to fall further if it sinks below 4.2775 and 4.2825, respectively a previous low on April 18 and the bottom of this year's trend channel.
The pair may have room to fall to at least 4.0214, the 76.4 percent Fibonacci retracement level of the rise between June 2010 and May this year.