Emerging Asian currencies rose broadly on Wednesday after China's central bank chief said Beijing will continue to invest in euro zone government debt, pushing the euro and riskier assets higher. The Singapore dollar led gains in Asian currencies, rising 0.5 percent against the US dollar. The Malaysian ringgit and Taiwan dollar followed close behind, with gains of 0.4 percent.
China's central bank Governor Zhou Xiaochuan on Wednesday expressed confidence in both the euro and in the ability of euro zone members to solve their debt problems, and added that China will continue to invest in euro zone government debt. However, market players cautioned against reading too much into Zhou's comments and the rise in Asian currencies on Wednesday.
"This China commitment is sounding more like a broken record for markets," said Suresh Kumar Ramanathan, Regional Rates/FX Strategist for CIMB Investment Bank in Kuala Lumpur. "Regional currencies have seen an incredibly strong rally since the beginning of the year," Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong, said in a research note.
The US dollar initially pushed higher against the Singapore dollar, but later reversed course. That lurch lower in the US dollar versus the Singapore dollar caught some market players on the wrong foot, said a trader for a major Japanese bank in Singapore. The trader said there was talk earlier of sizeable selling in dollar/Singapore dollar that left some market players with long US dollar positions.
Traders were "struggling to get out in a market already positioned long this currency pair the past few sessions," he said. South Korean won hit a three-month high against the Japanese yen of 0.0700 yen, just shy of the 200-day moving average of 0.0702 yen, as the yen came under broad pressure following the Bank of Japan's surprise monetary easing the previous day. "I doubt many people look at moving averages to trade this pair but still a break there could send the won higher, perhaps to around 0.0750 yen," said a trader at a Japanese bank.
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