SINGAPORE: The Singapore dollar was on track for its largest weekly gains in 16 months, rising on Friday after the central bank eased policy less aggressively than expected, though some investors booked profit when intervention was spotted.
The Monetary Authority of Singapore (MAS) contained the future pace of the currency's appreciation to cope with a slackening global economy, but the easing was more modest than anticipated due to concern about inflation.
After the decision, the Singapore dollar quickly strengthened 0.7 percent to 1.2688 per dollar but then cut some gains as investors took profit with the agent banks for the MAS seen selling the local unit at 1.2700.
The city-state's currency broke through that line in late Asian trading, but investors stayed wary of more intervention. It stood at 1.2693 versus the greenback.
"I don't mind shorting dollar/Sing around this level if the euro stays around 1.38. But I'm waiting for better levels, probably around 1.2740, as agents will be around today," said a senior Asian bank dealer in Kuala Lumpur.
Emerging Asian currencies rose this week as investors unwound overly short positions in risky assets including the euro and stocks.
The gains were rooted in hopes for a new comprehensive step by the end of this month to solve the euro zone's debt problems including an agreement on how to recapitalise banks.
The Singapore dollar has risen 2.2 percent so far this week versus the greenback, according to Thomson Reuters data, outperforming other emerging Asian units. If it maintains the gain, it will be the largest weekly percentage advance since the week ended on June 20, 2010.
In the previous two weeks, investors had already turned bullish on the local currency, a Reuters poll showed.
The South Korean won also reported its biggest largest weekly gain in six months with a 1.9 percent rise.
Still, some investors remained reluctant to buy emerging Asian currencies on continuing worries about the euro zone's sovereign crisis and a slowing global economy.
"I am cautious about selling dollar/Asia straight out like this. I still prefer to use rallies in dollar/Asia to sell instead," said a European bank dealer in Singapore.
"The European situation is a massive albatross. We have rating agencies who can't wait to downgrade everything."
On Friday, the euro dipped after S&P cut Spain's credit rating, putting some pressure on emerging Asian currencies.
SINGAPORE DOLLAR
US dollar/Singapore dollar slid to 1.2688 after the MAS decision, compared with 1.2770 just before the announcement.
The pair narrowed its falls as MAS' agent banks were spotted buying it, dealers said. That caused some players to book profit from the recent rises in the Singapore dollar.
"The market is assessing the fall below 1.27 as overshooting," said an Asian bank dealer in Singapore, adding players were looking to take profit when the pair was below that level.
The pair is seen having technical support at 1.2600, around the 50 percent Fibonacci retracement of its rises from 1.1993 to 1.3200 between July and October.
For some economists, the currency's outlook is not rosy, as they expect the central bank to ease more in the next policy review in April next year.
"I am afraid MAS may be behind the curve on this one. An initial knee-jerk reaction (in the currency) was expected, but the external headwind risk is still there, so I'm not ruling out visiting levels above 1.3000 eventually," said Suresh Kumar Ramanathan, regional rates and foreign exchange strategist for CIMB Investment Bank in Kuala Lumpur.
He said he expected MAS to ease further at its April meeting by altering the mid-point of the secret range the central bank MAS uses to conduct policy.
WON
Dollar/won barely changed as exporters' supplies offset dollar demand from custodian banks and importers.
"Some offshore funds see higher USD, weakening momentum to push USD/KRW down. But USD/KRW failed to keep the recent session highs, so I will sell it if it goes to around 1,165," said a foreign bank dealer in Seoul.
RINGGIT
Dollar/ringgit slightly fell after choppy trades.
The pair started higher than non-deliverable forwards (NDFs) in New York on risk aversion after S&P cut Spain's rating.
But it sharply fell, tracking US dollar/Singapore dollar after the MAS policy announcement.
Later, dollar/ringgit found some support from bids by locals and leveraged names.
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