The Singapore dollar slipped to its weakest level in 1-1/2 months on Wednesday as banks readjusted their positions, but Asian currencies were mostly steady as markets in several countries were closed for holidays.
The Singapore dollar weakened as far as 1.5283 per US dollar, its weakest level since mid-March, as some overseas banks moved to cover their short positions in the US currency. "Some European banks are buying the US dollar for the Singapore dollar. I think there should be some stop-loss process," said a dealer in Singapore.
The US dollar surged to a two-month high against the yen extending gains in the wake of data on Tuesday that showed US manufacturing expanded at its fastest pace in almost a year. The Institute for Supply Management said its index of national factory activity rose to 54.7 in April from 50.9 in May, above the median forecast of 51.0 among analysts polled by Reuters. The reading was the highest since May 2006.
The Taiwan dollar which has been under downward pressure in recent weeks due to capital outflows and a weaker Japanese yen, steadied on the stronger side of 33.3 per US dollar. The Taiwan dollar hit a 6-1/2-month low of 33.33 on Monday. Meanwhile, the South Korean won rose moderately to around 929.9 per dollar as exporters sold their dollar holdings.
Ben Simpfendorfer, currency strategist at Royal Bank of Scotland, expects the Taiwan dollar to inch towards the 33.5 level, but he remains bullish about the South Korean won. "I think as (economic) growth recovers and domestic demand gets stronger, the Bank of Korea's willingness to buy dollars will weaken somewhat," he said.
Most Asian currencies were little changed as China's markets are closed for the Labour Day holiday week, while markets in India and Malaysia are also closed. Japanese markets were closed on Monday for a national holiday and will also be closed on Thursday and Friday.
Most analysts expected that Asia's solid economic fundamentals would continue to provide upward support for regional currencies, although there was some concern about the possible fallout from China's efforts to slow its economy and Turkey's political turmoil.
"Recent events in China and Turkey are slightly negative for emerging markets, but we think the prospects for a repeat of a broad-based sell-off similar to May 2006 is remote," said Christy Tan, currency strategist at Bank of America.
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