Sing$, ringgit cut gains on Greece; Jakarta seen supporting

SINGAPORE: The Singapore dollar and the Malaysian ringgit rose on Friday on expectations that Beijing will continue to nudge the yuan higher, but later pared gains as Greece struggled to avoid a debt default and investors cut exposure to riskier assets.

Regional currencies received some support in early trade as the euro tried to rebound and from a media report suggesting the anniversary of the yuan's depegging from the dollar on Sunday might bring about the much discussed move to widen the trading band to 1.0 percent.

But the move soon fizzled out as the euro lost ground again, hit by a media report quoting ECB Council member Luc Coene as saying Greece needs to balance its budget by 2014.

Emerging Asian currencies remain vulnerable to the twists and turns of the Greek debt crisis, though expectations of further gains in the yuan may provide some short-term relief, analysts and dealers said.

"I expect Asian currencies to remain under pressure. Europe just can't get its act together at the moment. A CNY band widening will be helpful but will not be a lasting impact," said Jonathan Cavenagh, a currency strategist at Westpac in Singapore.

"USD/Asia dips are being used to take profit on existing short positions. The tone amongst markets is definitely more risk averse."

Regional units have suffered from a bout of profit taking in recent weeks on fears of a Greek debt default and signs of a slowing global economy.

Some such as the ringgit and the Indonesian rupiah broke through major technical support lines this week as the euro zone's debt problems deepened.

"Asia ex-Japan can only sustainably rally under the circumstances of a settling in the euro zone pressure," said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong.

The Singapore dollar and the ringgit, the most popular proxy currencies to the yuan, rose 0.4 percent and 0.3 percent against the US dollar, respectively, on speculation that Beijing would unveil a wider yuan trading band.

But they later gave up much of the gains as concerns about the euro zone kept players from making aggressive bets.

"I will take short term positions only," said a Kuala Lumpur-based dealer, adding he would buy the Singapore dollar if it weakened past 1.2380 versus the greenback and the ringgit when it weakened past 3.0430.

Some analysts ruled out the possibility that Beijing would widen the yuan band this weekend.

"The widening of trading band seems unlikely, as the current band width is not yet fully utilized. Also, despite faster CNY appreciation against USD, CNY trade-weighted index has been steadily declining. A widening of the trading band makes little sense in that regard," said Andy Ji, Asian currency strategist at Commonwealth Bank of Australia in Singapore.

The won rose 0.4 percent against the dollar, strengthening past a 60-day moving average of 1,087.3, helped by stop-loss dollar sales on caution over possible dollar-selling intervention by the foreign exchange authorities.

Some suspected the authorities of selling dollar again after they were spotted unloading dollars to cap falls in the South Korean currency.

Given sustained worries about Greek crisis, investors remain reluctant to buy the won more aggressively, while its downside is also seen limited by caution over intervention, dealers add.

"If stocks and the euro fall further, it may get close to 1,090, but few expects it to cross the line, especially after experiencing intervention yesterday. Nobody will doubt that it will stay in a range of 1,080 and 1,090," said a senior foreign bank dealer in Seoul.

The Philippine peso fell and underperformed its Asian peers as investors covered dollar-short positions, a day after the central bank's decision to hold rates steady.

The central bank held interest rates steady while raising banks' regular reserve requirements on Thursday after the local currency market closed.

But it has a support around a 200-day moving average of 43.632 per dollar.

The rupiah suffered from dollar-short covering by funds and foreign banks, but the central bank was spotted selling dollars around 8,600 per dollar, dealers said.

The Indonesian currency stayed weaker than a 55-day moving average of 8,582 and it has a room to weaken further to 8,605, the weakest of May 25 and 8,630, the low of April 27.

Copyright Reuters, 2011