SINGAPORE: Emerging Asian currencies were flat to slightly stronger on Monday, as the International Monetary Fund's decision to double its firepower to battle the European debt crisis offset investor caution before two major central bank meetings this week.
The Taiwan dollar, the Indian rupee and the Malaysian ringgit rose, but their gains were about 0.1 percent in subdued trading.
Leading world economies on Friday pledged $430 billion to the IMF to protect the global economy from the euro-zone debt crisis, even as finance chief urged European governments to cut debt and push through bold financial reforms.
Currency traders shrugged off data showing Chinese factory activity stabilized in April as it did not yet signal an expansion in manufacturing in Asia's biggest economy.
Investors are also awaiting the outcome of monetary policy meetings of the US Federal Reserve and Japan this week. The Federal Reserve is set to hold a two-day meeting from Tuesday.
The Bank of Japan will consider an increase in asset purchases when it meets on Friday, sources familiar with the Bank of Japan's thinking said.
That may prompt investors to borrow the yen to buy emerging Asian currencies, dealers and analysts said.
"A further expansion of its asset purchase program seems almost in the bag. But a more powerful signal of its commitment to loosen the reins would be purchases further out along the curve," said Frederic Neumann, co-head of Asian economics at HSBC in a research note.
"For the rest of Asia, that could provide another powerful monetary boost. With yields falling further in Japan, banks and asset managers will then search even more aggressively for yield elsewhere. Korea, Thailand, Malaysia, Indonesia, and the Philippines stand to gain the most," he said.
Emerging Asian currencies had been major beneficiaries earlier this year when major central banks eased monetary policy to boost growth.
The impact of BoJ's easing on other Asian currencies may be limited, however, given sustained worries about the euro zone's debt crisis, some analysts said.
Enrico Tanuwidjaja, a currency strategist at Maybank in Singapore, said the IMF's ammunition of $430 billion to prevent European debt problems from spreading may not enough to bolster confidence immediately as most of the funds will trickle over a span of a year rather than in one lump sum.
"Global developments are still pretty weak to spur demand for Asian currencies," said Tanuwidjaja.
"It is possible to see BoJ's asset purchasing this week, but the impact could be secluded to the yen. Options market priced in higher probability of yen puts en route to the possible asset buying. But the rest of dollar/Asia still follows the broad dollar move despite such expectations."
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