The Singapore dollar rose on Friday, helped by a surprise policy tightening by the central bank, while the won outperformed regional peers after risks stemming from North Korea's rocket launch were removed. Most emerging Asian currencies gained on improved risk appetite after a stronger-than-expected Italy's sovereign debt sale.
Regional units trimmed gains as investors took profits after disappointing China's first quarter economic growth. The world's second biggest economy grew 8.1 percent from a year earlier, missing market expectations of 8.3 percent expansion. The data hit the euro and Australian dollar.
But emerging Asian currencies maintained strength as they had priced in a slowing Chinese economy to some degree, dealers and analysts said. US dollar/Singapore dollar slid after the Monetary Authority of Singapore (MAS) said it will tighten monetary policy by increasing the appreciation slope slightly because of persistent inflationary pressures.
The pair fell to as low as 1.2460, although it recovered some of the loss after the release of China's growth data. Some speculators covered short positions, which they built up betting on tightening. Technically, US dollar/Singapore dollar has a strong support at a trendline of 1.2429 and a daily close below 1.2425 would be very bearish.
Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore, said the most surprising part of the MAS announcement was not the steepening but the "very hawkish" narrowing of the band width. "The central bank is essentially saying that both financial market volatility and outlook uncertainty, which the band accommodates, are receding and will recede further," he said.
Suresh Kumar Ramanathan, regional rates and foreign exchange strategist at CIMB Investment Bank in Kuala Lumpur, said he doubted the Singapore dollar "will be allowed to appreciate excessively... any appreciation will come in the form of its swap offered rates (SORs) collapsing."
The negative conditions in the front end SOR - a rate determined by both local deposit rates and FX forwards - will remain a key driver for markets to limit Dollar/won fell more than other dollar/Asian currencies after North Korea launched the rocket, which Pyongyang later confirmed failed to enter orbit. Foreign shareholders will receive an estimated total of 1.06 trillion won ($929.29 million) in dividends, according to Reuters calculations.