SINGAPORE: Most emerging Asian currencies rose on Wednesday due to hopes a German court will approve the euro zone's bailout fund and that major countries will make stimulus moves, although some of regional units were seen as excessively bought.
The Malaysian ringgit outperformed Asian peers on fund inflows, hitting a near four-month high. The Singapore dollar touched a one-year peak, and the central bank was spotted intervening to slow its strength.
The Taiwan dollar enjoyed demand from foreign financial institutions with the South Korean won supported by offshore funds.
Maybank FX research head Saktiandi Supaat said emerging Asian currencies have room to rise further.
With expectations for new quantitative easing in the US on top of stimulus moves in China and reduction of euro zone risk, "it looks like riskier currencies are seeing some interest," said Singapore-based Supaat.
Investors awaited Germany's Constitutional Court's ruling on the European rescue fund at 0800 GMT. The court is expected to give its approval to the fund while insisting on guarantees to safeguard German parliamentary sovereign and limit Berlin's financial exposure.
Spain Prime Minister Mariano Rajoy was quoted as saying his country is considering obtaining help from the European Central Bank's bond-buying programme but is not planning a full sovereign bailout. That lifted the euro to a four-month high against the dollar.
Other risky assets such as Asian stocks rallied.
After the German court decision, the market focus will be on whether the Fed makes new stimulus moves at a policy meeting ending on Thursday.
Risk sentiment was also boosted after Premier Wen Jiabao said on Tuesday that China is on track to meet this year's target for economic growth and if needed, the government could utilise a 100 billion yuan ($15.8 billion) fiscal stability fund to boost growth.
Still, some dealers and analysts doubt how much emerging Asian currencies could advance, given that regional economies are slowing down. They expect some corrections in those units after the Fed meeting.
Despite positive policy steps, there is a long way to go before economies return to strong growth and there are plenty of pitfalls along the way, they added.
Technically, some emerging Asian currencies such as the Singapore dollar and the Taiwan dollar were seen as excessively bought. The ringgit and the Thai baht were near overbought territory.
"My only fear is that currency markets are putting the cart before the horse, given such large expectations on Dr. Bernanke," said Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur, referring to Fed Chairman Ben Bernanke.
Ramanathan said he sees the Singapore dollar as most vulnerable to potential corrections or profit-taking.
RINGGIT
The ringgit gained to 3.0680 per dollar, its strongest since May 14 as model funds and exporters bought it, dealers said.
The Malaysian currency may head to 3.0637, the 76.4 percent Fibonacci retracement of its depreciation between May and June, given the dollar's weakness, dealers said.
But investors were reluctant to add more bullish positions around the current levels, as dollar/ringgit's 14-day relative strength index (RSI) fell to 30.74, a notch higher than the 30 threshold, indicating the pair is almost excessively sold.
TAIWAN DOLLAR
The Taiwan dollar advanced to 29.580 to the US dollar, its firmest since May 28, as foreign financial institutions and domestic exporters chased the island's currency.
The local unit has room to strengthen further, probably to 29.550, on optimism there will be Fed stimulus, dealers said.
Still, Taiwanese importers purchased greenbacks for payments amid sustained caution over possible intervention by the central bank, although this had not been spotted yet, according to dealers.
US dollar/Taiwan dollar's 14-day RSI fell to 19.86, well below the threshold, suggesting the Taiwan dollar is in overbought territory.
PHILIPPINE PESO
The Philippine peso rose 0.2 percent and broke through a resistance at 41.50 against the dollar, although the central bank was spotted buying dollars to check the peso's strength, dealers said.
The local currency is expected to advance further as long as hopes stay intact for the Fed's further easing despite caution over intervention by the central bank, they added.
A foreign bank dealer in Manila said the peso will head to 41.10 and 40.25 eventually if the Fed decides more stimulus.
"The 41.50 was crucial and any attempt to support the dollar at these levels might be futile," he added.
WON
The won strengthened to 1,125.2 per dollar, its strongest since Aug. 9 on demand from offshore funds, while South Korean importers bought dollars on dips for payments, limiting its gains.
For further gains, the local currency needs to clear a resistance line at 1,124.0, its session peak on Aug. 6, dealers said.
Foreign exchange authorities may step in to slow the won's appreciation, dealers said.
"We may test 1,124 if the euro/dollar jumps to 1.3. But firm oil prices are expected to keep checking the won's upside," said a senior foreign bank dealer in Seoul.
On Thursday, the Bank of Korea has a policy meeting. A Reuters poll showed economists expect it to cut interest rates for the second time in three months to support the slumping economy.
SINGAPORE DOLLAR
The Singapore dollar hit 1.2281 per US dollar, its strongest since Sept. 12, 2011.
But the city-state's currency failed to extend gains as the central bank was spotted buying greenbacks around 1.2280, dealers said.
The local unit has the 76.4 percent retracement at 1.2278 of its depreciation between July and October last year.
US dollar/Singapore dollar's 14-day RSI fell to 26.96, indicating the pair is excessively sold.
RUPIAH
The rupiah barely changed as demand from foreign banks after a strong bond auction on Tuesday offset dollar bids from local banks, dealers said.
The finance ministry raised 6.2 trillion rupiah ($646.74 million) in an auction of government bonds, above its 5 trillion rupiah target.
The rupiah is expected to find support from the German constitutional ruling and if the Fed starts a third round of quantitative easing, a Jakarta-based dealer said, adding the local currency may strengthen to 9,540 per dollar.
Still, it is premature to expect a jump in the rupiah, given sustained worries about bond outflows, another dealer in Jakarta said.
"I do not see a renewed buying spree in bond markets like when the QE2 was announced," said the dealer said.
"We will see a slight rebound in bonds and then some profit-taking," the dealer added.
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