SINGAPORE: Emerging Asian currencies gathered upside momentum, touching milestones against the dollar on Thursday after the Federal Reserve signalled it would not hurry to tighten policy, cementing expectations for further fund flows into Asia.
The Singapore dollar hit a fresh record high against the greenback and is seen as technically the most overbought since October last year when the central bank widened its trading band for the first time since after Sept. 11, 2001 attacks on the United States.
Foreign exchange authorities from many Asian countries including Singapore and South Korea intervened to check strength in their currencies, but they moved dollar bids lower in line with overall gains in the regional units, dealers said.
Currency market players, such as exporters, did not miss out on buying emerging Asian currencies on dips that resulted from intervention.
The Federal Reserve's first-ever press conference ‘appeared merely to confirm the market's view that the Fed will complete its QE2 programme and thereafter maintain ultra-loose monetary policy for the foreseeable future. For now at least, there appeared little to trouble USD bears,’ said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore.
‘The market is clearly short USD, but with USD fundamentals remaining very weak -- weak growth recovery, zero policy rates, high unemployment, rate hikes outside the US, and the terms of trade impact from high oil -- that remains the way to go.’
On Wednesday, Chairman Ben Bernanke signaled that the US central bank is in no rush to scale back its support for the economy with the labour market still in a ‘very, very deep hole.’
Emerging Asian currencies have risen on growing appetite for higher yields, as regional policymakers fight inflation amid economic fundamentals that are stronger than elsewhere.
Abundant global liquidity also helped them as investors have piled into Asian stocks and bonds.
‘Asian currencies' gains are really speedy, especially after Bernanke appeared not to have any will to lift the dollar,’ said Jeong My-young, a currency strategist of Samsung Futures in Seoul.
Investors appeared long on regional currencies against the dollar, but they saw little risks of massive dollar short-covering for the moment.
‘Bernanke seems to be rather happy with holding off any tightening move even after completing QE2,’ said Andy Ji, Asian currency strategist and economist at Commonwealth Bank of Australia in Singapore.
‘The Fed thinks both core inflation and inflation expectation are well anchored. So in the short-term, risks of dollar-short cover have diminished somewhat, at least for the next month.’
Still, more gains in Asian currencies may come slowly on intervention and given market positions, some dealers said.
Ji expects regional central banks to intensify intervention efforts along with some forms of capital controls.
Seoul warned that it may impose fresh capital controls after data showed short-term foreign borrowing in March jumped the most in 27 months amid expectations for further gains in the won currency.
‘From here, we should play short-term because risk of a jump(in USD/AXJ) is high with too many short positions,’ said a senior dealer in Kuala Lumpur.
The dollar/Singapore dollar's 14-day Relative Strength Index (RSI) fell to 16.7, the weakest since Oct. 14 last year when the Monetary Authority of Singapore widened the trading band for the city-state's currency.
The dollar/ringgit 14-day RSI slid to 14.9, the lowest since May 2007, indicating the pair are oversold.
WON
The won strengthened to as firm as 1,071.0 per dollar in Seoul, the strongest since August 2008, and its one-month non-deliverable forward (NDF) also shrank to the lowest since that same month.
The foreign exchange authorities were spotted buying dollars to stem gains in the South Korean currency.
Meanwhile, a central bank official said a firmer won had had little impact exports on so far and domestic companies would be able to bear the levels.
The rupiah hit a seven-year high against the dollar with strong follow-through demand for Indonesia's new dollar bond.
In one of the biggest deals in the dollar space from Asia-Pacific, Jakarta's $2.5 billion medium-term note offering this week was nearly 3 times oversubscribed, with half the issue snapped up by US investors.
The rupiah firmed to as strong as 8,572, the strongest since April 2004.
The central bank was spotted buying dollara, initially from 8,600 up to 8,610, but pulled back its intervention lines.
A European bank dealer in Jakarta said Bank Indonesia would allow more appreciation as it is a regional trend.
INTERVENTION
Central banks of Singapore and Malaysia were spotted buying dollars to slow down strength in their currencies, which were seen as more overbought than others.
But they also lowered levels of US dollar bids in line with a slide in the greenback, dealers said.
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