Singapore dollar, ringgit lead Asia FX rises; cautious optimism

SINGAPORE: The Malaysian ringgit and the Singapore dollar rose on Monday as investors added positions in battered emerging Asian currencies, raising hopes for more gains in the regional units, but players stayed cautious over European debt problems before a summit between France and Germany.

Investors already cut positions in the South Korean won by about two-thirds, while they increased bets on the Singapore dollar in safe-haven trades and the Chinese yuan on expectations of Beijing's currency policy shift, a Reuters poll showed.

"We see some upside in Asians this week, albeit modestly. The risk-taking will remain subdued as it will take time to repair the bruised sentiment," said Andy Ji, Asian currency strategist at Commonwealth Bank of Australia in Singapore.

"The still-elevated volatility means you will be always able to still get into short USD/AXJ trades around these levels," said Ji, adding he would not advise investors to be more aggressive in building up positions in emerging Asian currencies.

The regional units have suffered from profit-taking and positions adjustments on increased worries about debt problems in the United States and the euro zone, as well as a slowing global economy.

Last week, the won shaved most of its rises against the dollar in June and July by falling for a third consecutive week, while the Indian rupee reported the largest weekly loss in nearly eight months, according to Reuters data.

Investors are keeping an eye on the Franco-German summit and euro zone second-quarter economic growth data, both on Tuesday, to get more clues on the global economic outlook and the policy response needed to tackle European debt problems.

But many analysts maintained their bullish outlook for emerging Asian currencies in the longer term on the region's stronger economic fundamentals and higher interest rates.

"Hopefully last week has been erased in the minds of the market. This will hinge on data to some degree, however if equity markets can manage stability or small gains, I think the fundamental thrust is for more gains considering what the Fed did last week," said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong.

Tihanyi said he will recommend taking more aggressive stance in emerging Asian currencies, adding the ringgit, the won and the Thai baht look attractive.

Standard Chartered advised exporters in ex-Japan Asia to raise hedge ratios, saying it sees choppy and volatile emerging Asian currencies this month as a major opportunity for those with dollar receivables to increase hedge ratios.

"AXJ exporters should use the volatility in August to raise hedge ratios on year-end USD receivables via USD-AXJ. Conservative exporters can use forward outright to lock in rates. Alternatively, elevated levels of USD-AXJ vols and risk reversals suggest opportunities to capture cheaper downside," it said in a note.

RINGGIT

The ringgit strengthened past 2.9759 per dollar, the 61.8 percent Fibonacci retracement of its depreciation between late July and early August.

Malaysian exporters chased the local currency, dealers and analysts said.

If the Malaysian currency ends the day stronger than the retracement, it may head to 2.9591, the 76.4 percent retracement.

SINGAPORE DOLLAR

The Singapore dollar found technical resistance for now at around 1.2061 versus the greenback, the 76.4 percent retracement of its falls between late July and early this month.

Investors remained wary of possible US dollar-buying intervention by the central bank.

"Our SGD NEER (Singapore dollar nominal effective exchange rate) is getting back close to the top of our MAS (Monetary Authority of Singapore) band estimate, so I'd be wary of selling USD/SGD here," said Westpac currency strategist Jonathan Cavenagh in Singapore.

Still, interbank speculators and some funds such as hedge names bought the city-state currency, dealers said, on its brighter outlook and expectations that MAS will allow the currency to strengthen to fight inflation.

Inflows to Singapore pushed swap offer rates (SOR) into negative territory and sent 10-year yields of SG bonds to record low last week.

"Negative SOR makes it more costly to run long SGD positions, but even then, long SGD positions are still favoured," said Thio Chin Loo, a currency strategist with BNP Paribas in Singapore, adding that the Singapore dollar is still seen as a safe haven currency.

PHILIPPINE PESO

Philippine importers bought the dollar on dips as the peso is seen finding resistance around 42.40 per dollar.

Excerpt for a brief time on Aug. 10, the peso has stayed weaker than 42.40 since Aug. 5.

"Traders remain cautious although positive risk sentiment is slowly coming back, I'm looking at 42.40 as a minor support right now and a break of that level should signal a test of 42.25 to 42.20," said a European bank dealer in Manila.

The peso's 61.8 percent retracement of its depreciation earlier this month stands at 42.24.