SINGAPORE: The Malaysian ringgit jumped to its highest level since the Asian financial crisis and the Indonesian rupiah hit a seven-year peak on Monday, while the Singapore dollar retreated from a record high as investors covered US dollar-short positions.
Emerging Asian currencies may suffer brief corrections as some have been overbought, especially if the dollar rebounds, but they are expected to stay firm, analysts and dealers say.
"In the short-term, USD is rather oversold, so risk of an USD rebound and consequently short-covering are definitely there," said Andy Ji, Asian currency strategist and economist at Commonwealth Bank of Australia in Singapore.
Higher-yielding currencies such as the ringgit and the rupiah may suffer most from such short-covering, Ji said.
The dollar/ringgit 14-day relative strength index (RSI) fell to 23.544, the lowest since April 9 last year, while the dollar/rupiah 14-day RSI has stayed below 30 since early February on all but two days, indicating the dollar has been oversold against both of the two currencies.
"But it is really the USD (weakness) and risk story here, despite the fact that growth and inflation mix hasn't really changed much in the meantime," Ji said.
The greenback rebounded, but traders said it could still test its all-time low against a basket of currencies if the Federal Reserve takes a cautious stance later this week toward eventual policy tightening.
If the Fed says it will maintain existing liquidity measures while not planning a fresh round of asset buying, that will support Asian currencies with the end of "QE2" already priced into the market, Ji said, adding investors also seem confident that the Fed is not going to start withdrawing liquidity for some time.
Emerging Asian currencies have enjoyed strong gains on the back of robust economic growth and as global investors look for higher-yielding assets, including stocks and bonds in the region. Policymakers have also took steps to contain inflation.
The Asian foreign exchange authorities may step into markets from time to time to slow gains in their currencies, but not to turn around the bullish trend, dealers and analysts said.
"If there is any bounce (in dollar/Asia) with intervention, investors and traders should add short positions as they mostly slow the USD decline not reverse the trend," said a US bank dealer in Singapore.
RINGGIT
The ringgit hit a 14-year high against the dollar as exporters and interbank speculators chased it.
The Malaysian currency strengthened to as firm as 2.9900 per the greenback, the highest since Sept. 1997.
"The government seems to be happy with the strong MYR to curb inflation. That makes every exporters not want to hold dollars," said a senior dealer in Kuala Lumpur.
"THB, SGD, TWD and KRW all will stay strong and MYR will be strong. It is logical not to hold dollar."
PESO
The peso caught up with gains in other Asian currencies after longer holidays in Philippines than in other Asian countries.
Philippine financial markets were closed from Thursday while markets in other Asian countries such as Singapore and Hong Kong were shut on Friday. Hong Kong will reopen on Tuesday.
But the Philippine currency is facing a strong resistance around 43.00 per dollar on potential intervention, dealers said.
"I'm looking at a test of 43.00 but not sure if it will break it through," said a European bank dealer in Manila, adding he suspected the central bank's intervention at the session high of 43.160.
Earlier this month, the central bank has been spotted buying dollar to defend the level.
SINGAPORE DOLLAR
The Singapore dollar hit a fresh record high against the US dollar but gave up some gains as investors took profits amid a rebound in the greenback.
The Singapore dollar strengthened to as firm as 1.2319.
A Senior European bank dealer said Monetary Authority of Singapore was seen at around 1.2320.
WON
The won edged down on importers' demand and short-covering around 1,080 per dollar, which South Korea's foreign exchange authorities had defended last week.
A government source also said the country is seriously considering cutting the ceilings on banks' foreign exchange derivatives positions, putting pressure on the won.
But it found support from exporters, which bought the won around 1,082, locking it into a tight range.
"Importers' deals and regulation talk lifted dollar demand, but exporters kept buying won around 1,082," said a foreign bank dealer in Seoul.
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