SEOUL: Emerging Asian currencies moved higher on Wednesday on expectations of greater inflows into the region if the Bank of Japan eased monetary policy this week in line with market forecasts.
Signs of progress in negotiations in the US on avoiding the "fiscal cliff" of automatic tax hikes and spending cuts also boosted appetite for risky assets.
With the yen under pressure, regional currencies extended gains with the Singapore dollar hitting its strongest value in more than two and a half years against the Japanese currency.
On Wednesday, the Bank of Japan began its regular two-day policy meeting at which sources said it will decide to take further easing steps. It will also consider adopting a 2 percent inflation target no later than in January in response to calls from the incoming prime minister, Shinzo Abe, for the bank to make stronger efforts to beat deflation.
Markets have already priced in BOJ action on Thursday with 14 out of 19 economists polled by Reuters last week expecting further easing via an increase in asset purchases.
"It seems fresh capital will inevitably find its way into the region," said Jonathan Cavenagh, a senior FX strategist at Westpac in a note, adding the Bank of Japan is likely to ramp up its balance sheet in the period ahead.
"This will be met with some resistance from Asian central banks, particularly given the still uncertain export outlook, but this is unlikely to alter the trend move higher in Asian currencies."
Local exchange authorities around the region have been concerned about rising currencies and some like South Korea are believed to have intervened in recent weeks to stem the rise.
TAIWAN DOLLAR
The Taiwan dollar gained on demand from exporters for settlements, although the bids were not that strong with investors wary of possible intervention by the central bank, dealers said.
But some foreign banks bought US dollars for repatriation, limiting the island's currency's upside, they added.
Investors were keeping an eye on the central bank's policy meeting later in the day when it is expected to leave the benchmark discount rate steady for a sixth consecutive quarter, according to a Reuters' poll.
RINGGIT
The ringgit rose against the US dollar as investors bought the Malaysian currency versus the Singapore dollar to take profit from the city-state's unit.
The Malaysian unit advanced 0.2 percent to 2.5039 to the Singapore dollar. On Tuesday, the ringgit hit a three-month low of 2.5099 to the neighbouring currency.
But US dollar demand from local investors capped the ringgit's upside, dealers said.
SINGAPORE DOLLAR
The Singapore dollar eased as investors booked profits and covered short positions in the US dollar.
Investors were also wary of possible intervention by the central bank to slow down appreciation in the city-state's currency.
But investors placed orders to buy the Singapore dollar between 1.2200 to the greenback and 1.2210 as the local unit is seen heading to this year's peak of 1.2152 hit on Oct. 17.
Center>Copyright Reuters, 2012
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