Singapore dollar drives Asia FX lower as central bank move may fan regional easing; baht cuts losses

SEOUL: The Singapore dollar fell to its weakest in nearly four-and-a-half years on Wednesday, driving losses among emerging Asian currencies, after the city-state unexpectedly eased monetary policy to tackle deflationary pressures.

Traders fear other regional central banks could follow suit in coming weeks as they seek to keep their exports competitive in the face of uneven global demand.

Thailand's baht recovered most of its earlier losses after the central bank left its policy interest rate unchanged. The move by Singapore's central bank had fueled speculation that it, too, could ease policy.

The Monetary Authority of Singapore (MAS) reduced the slope of its monetary policy band ahead of its scheduled review in April. The central bank also cut its inflation forecast for the year.

The surprise move sent the Singapore dollar to 1.3570 per US dollar, its weakest since August 2010, on hedge fund selling.

Malaysia's ringgit also fell, reflecting perceived risks that the central bank could surprise with interest rate cuts later in the day.

Bank Negara is expected to keep its key interest rate unchanged at 3.25 percent, as the country's economy remains at risk from a slump in oil prices and a weakened currency, a Reuters poll showed.

The South Korean won slid as offshore funds sold the currency amid expectations that the Bank of Korea may cut interest rates soon.

The baht earlier has lost as much as 0.3 percent to 32.64 per dollar, its weakest since Jan. 21.

The Thai currency pared most of the slides as local traders covered short positions after the country's central bank kept its interest rate. The unit also found support from stock inflows.

"It is relatively less dovish in the sea of dovish bias from various central banks," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.