Asian currencies pared early declines on Monday as regional stock markets rallied and the Japanese yen trimmed losses incurred after a meeting of the Group of Seven economies.
Regional currencies initially fell after the G7 took a soft stance on the Chinese yuan and other Asian currencies, and as oil prices stayed near $50 a barrel.
But by late Asian trading on Monday, the yen was higher and the Indonesian rupiah had swung from a loss of half a percent to a gain of a quarter percent to trade at 9,090 a dollar.
Boosted by foreign portfolio inflows and a rise in the Philadelphia semiconductor index, Taiwan's stocks ended at a four-month high, South Korean stock rose 4 percent and other Asian markets firmed.
J.P. Morgan said in a note three factors had been working in favour of the Asian currencies; the expectations built around China ahead of the G7, portfolio investment inflows and possible monetary policy tightening.
"The positive bias from the China revaluation event risk should unwind this week as the weekend's G7/IMF meetings failed to deliver any prospect of near-term Chinese yuan revaluation," J.P. Morgan said.
"Nonetheless, portfolio inflows and the prospect of monetary tightening should allow Thai baht and Indonesian rupiah to outperform Asian regionals this week," J.P. Morgan said.
A G7 communiqué on Friday adopted the same language as previous meetings over the past year of urging flexibility in exchange rates - a message seen as aimed at China.
"We emphasise that more flexibility in exchange rates is desirable for major countries or economic areas that lack such flexibility to promote smooth and widespread adjustments in the international financial system, based on market mechanisms," the G7 said after the meeting in Washington.
Markets had expected the G7 to merely reiterate their message but had been buying the yuan in offshore markets and other Asian currencies.
Chinese officials invited to the G7 meeting repeated their stance that they planned a more flexible exchange rate regime but that there was no timeframe for liberalising yuan policy.
The Korean won was marginally lower at 1,149 a dollar.
The Thai baht slipped to 41.40, holding below 10-day highs near 41.21 struck late on Friday as higher oil and another death caused by bird flu hit sentiment.
The Sing dollar rose to 1.6830 a dollar. It came off 5-month highs above 1.68 in offshore deals but has been supported by positioning ahead of an October 11 semi-annual monetary policy review, with markets expecting the Monetary Authority of Singapore to retain the tightening bias it had announced in April.
J.P. Morgan said the Indonesian rupiah, which has been volatile in a 9,240-8,900 range since the September 20 presidential vote, would extend gains as investors responded to the election of ex-general Susilo Bambang Yudhoyono.
J.P. Morgan said the 20-day rolling sum of net foreign equity inflows into Indonesia had also risen to $182.6 million.
Jakarta's shares hit record highs on Monday.
Traders said the rupiah's fortunes would depend on the shape of the cabinet Yudhoyono was likely to announce over the next few days.
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