SINGAPORE: The Singapore dollar edged higher on Friday in a reflection of what analysts said were traders being forced to shift their positions and strategies, after Switzerland's unexpected move to abandon its cap on the franc jolted financial markets.
The Singapore dollar rose about 0.2 percent to 1.3238 versus the US dollar, edging away from a four-year low of 1.3419 set last week.
"Since volatility has risen suddenly, a position unwinding type of move seems to be taking place," said a trader for a Japanese bank in Singapore, referring to Asian currencies in general.
The Swiss franc had surged as much as 30 percent to a high of 0.8500 franc per euro on Thursday after the Swiss National Bank (SNB) suddenly ditched its cap on the Swiss franc.
"We see a broader deleveraging dynamic happening in EM as a result of that. A lot of investors or corporates who were hit by the move yesterday, would be looking to cut their risk positions in general," said Divya Devesh, FX strategist for Standard Chartered Bank in Singapore.
That suggests that any currencies in which market positioning was tilted toward being either very bullish or very bearish, could be pushed around by position squaring.
Andy Ji, Asian currency strategist for Commonwealth Bank of Australia, said the rise in the Singapore dollar and the Taiwan dollar after the SNB move may be a result of investors switching their preferred funding currency to the euro.
The Taiwan dollar touched a near one-month high of 31.548 versus the US dollar earlier on Friday and was last up about 0.6 percent on the day.
The Taiwan dollar and the Singapore dollar have been popular funding currencies, which investors would sell to fund investment in higher-yielding currencies and assets, Ji said.
"They were funding currencies but I think market just got out of those shorts," he said, adding that they were now probably shifting to short positions in the euro instead.
The euro languished just above an 11-year trough versus the US dollar as investors wagered that the Swiss move to abandon its currency cap meant it was almost certain the European Central Bank would launch large-scale bond buying next week.
SOUTH KOREAN WON
The South Korean won rose against the dollar, after the Japanese yen touched a one-month high on safe haven bids.
A stronger yen gives investors more flexibility in making bullish bets on the won as it reduces the risk of intervention by financial authorities to keep the local currency competitive.
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