SINGAPORE: The Singapore dollar hit a record high and the South Korean won rose to a 2-1/2-year high on Friday, leading gains in emerging Asia, as foreign exchange authorities pulled back their defence lines on domestic currency strength in the face of rising capital inflows.
The combination of robust equity flows into Asia and a revived interest in carry trades will probably keep emerging Asian currencies strengthening in the near term, analysts and dealers said.
"Asian authorities have accepted that much of the gain in their currencies is due to general US dollar weakness whilst many central banks are allowing currencies to do an increasing amount of the work to dampen inflation pressures," said Mitul Kotecha, head of global FX strategy at Credit Agricole in Hong Kong.
"Capital flows to Asia have strengthened sharply over recent weeks, pointing to ongoing upward momentum," he said, adding there is still risk of intervention to slow currency appreciation rather than reverse it.
Hedge funds piled on the move higher in Asian currencies, taking particular interest in the Singapore dollar ahead of a policy meeting of the Monetary Authority of Singapore next Thursday. MAS is widely expected to tighten policy, which it manages through exchange rates.
The Singapore's central bank allowed investors to cross 1.2600 per dollar, which it had been defending. South Korea's currency authorities had not been spotted buying dollars until the won hit a 2-1/2-year high beyond 1,085.00, having moved its intervention levels increasingly lower in the past several weeks, dealers said.
Asian monetary authorities are facing a rising tide of portfolio investment entering their economies and putting upward pressure on their currencies, and also a risk of quickening inflation. Oil prices hit a 2-1/2-year high on Friday.
In the week ended Wednesday, emerging market equities enjoyed net inflows of $2.7 billion in fresh cash, the fourth-largest weekly tally since 1992, data from Lipper showed.
WON
The won hit a fresh 2-1/2-year high against the dollar as offshore hedge funds built up short yen/won and euro/won positions.
The won strengthened to as firm as 1,082.0 versus the greenback during the local trade, the strongest since Sept. 8, 2008. Hedge funds had left dollar offers around 1,085 won, a US bank dealer said.
The South Korean currency found further support from demand for exporters' settlements, while the authorities lowered their intervention level to 1,082 per dollar, dealers said.
Foreign investors extended their net purchases of Seoul shares to a 18th consecutive session, helping the KOSPI end up 0.27 percent. That is the longest string of net buying by foreign investors since October 2010.
SINGAPORE DOLLAR
The Singapore dollar firmed to a record high of 1.2560 per US dollar on surging demand after the central bank allowed market players to cross the line which it had been defending.
The Monetary Authority of Singapore (MAS) was seen pulling back dollar bids at 1.2600 per the greenback, although it was spotted buying it around 1.2560 later, dealers said.
The Singapore dollar has been supported by expectations that the MAS will tighten more on Thursday to fight inflation.
YUAN NDFS
Dollar/yuan non-deliverable forwards (NDFs) fell sharply with the one-month NDF hitting a fresh all-time low, as investors rushed to catch up with a series of six consecutive stronger yuan mid point fixings.
The 1-month dollar/yuan NDF slid to as low as 6.5030 and the 1-year NDF fell to 6.3605, the lowest since April 2008. That implied spot yuan appreciation of 2.4 percent in the next year, slightly more than the 2.2 percent implied by the one-year NDF a week ago.
Earlier, China's central bank said it will open domestic bond market further to overseas investors.
"PBOC said that they will accelerate opening of its bond market, though acknowledging inflows will add to CNY appreciation. So maybe investors are now betting on a faster CNY appreciation," said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong.
RINGGIT
Demand from interbank speculators and leveraged names lift the ringgit to a two-week high against the dollar.
The Malaysian currency strengthened to as firm as 3.0200 per dollar, the strongest since March 25.
Malaysia's central bank was spotted buying dollars, but it also followed its Asian peers lowering levels of dollar bids.
The central bank, which had been guarding 3.0250 versus the greenback, intervened around 3.0220, dealers said.
RUPEE
The India rupee hit a five-month high against the dollar on demand from interbank speculators and leveraged accounts.
The rupee strengthened to as firm as 43.98, the strongest since Oct 15, 2010. If it clearly breaks through 43.97, the high of Oct 15 last year, demand for the Indian currency is seen increasing more.
The central bank has not been spotted intervening yet, that could attract fast money and funds for catch-up buying.
The rupee returned to levels of 44 per dollar, but that was mainly because of dollar demand from oil importers.
The rupee has risen 1.5 percent against the dollar so far this year, the second worst performing currency after the Thai baht among emerging Asian currencies.
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