Most Asian currencies edged up against the dollar on Monday, with sentiment slightly bullish after a weekend decision by China to raise interest rates boosted hopes of faster yuan appreciation.
The yuan touched a post-revaluation high of 7.7330 to the dollar, while China's main stock index bounced back from early losses to jump nearly 3 percent. The reaction in Chinese stocks to the rate move was in focus given recent volatility in global markets and its rally, together with gains in other Asian equity markets, supported local currencies.
"The Shanghai stock index, and other equity markets in Asia, shrugged off the rate hike. One possible reason for the reaction could be that some in the market inaccurately perceive this as the end of rate hikes in China," said Bank of America currency strategist Christy Tan.
"I doubt the rate move has a significant impact on where the yuan is trading right now, but it is a possible endorsement of further yuan appreciation."
China lifted its benchmark one-year yuan lending and deposit rates by 0.27 percentage point each, taking the one-year deposit rate to 2.79 percent and the lending rate to 6.39 percent. The South Korean won gained as much as 0.28 percent to a two-week high at about 942 per dollar, but had trimmed gains by late trade.
A fall in the US currency on subprime mortgage worries on Friday also lifted the won but gains were cut amid thin trade as importers sold the South Korean unit for settlements and by sustained foreigners' stock sales.
Investors were also wary of possible supplies of the won as major companies are scheduled to pay dividends to foreign shareholders from next week. The won was last quoted at 943.3/3.8 per dollar, compared to its previous closing bid of 944.5.
"Now no one expects the won to fall toward 950, given exporters demand and as investors hold dollar-long positions, but it is also difficult to see a big rise due to dividend payments and continuos stock sales by foreign investors," said a foreign bank dealer.
Malaysia's ringgit strengthened to about 3.4960 per dollar its highest in just over two weeks, while in onshore trade in Thailand, the baht hit 34.79 to the dollar - its strongest since about September 1997. "Exporters are still selling the US dollar," said a Bangkok trader. "The trend for the baht is still up."
The Singapore dollar gained as much as a quarter of a percent to 1.5248 per US dollar, within sight of Friday's peak of 1.5245 - the highest in two weeks and a level matching a nine-year high seen in late February and early March. Dealers said that the currency had been trading at the weaker end of its band, but since Friday there has been heavy US dollar selling by funds.
They said this was partly triggered by talk that the Monetary Authority of Singapore (MAS) could tighten monetary policy at its next meeting.
The MAS sets monetary policy through the currency instead of interest rates, guiding the Singapore dollar within a trade-weighted band whose parameters are kept secret. "The Sing NEER (nominal effective exchange rate) has been at the bottom end of the band - it's actually come down 70 basis points from where it was a month ago," said a Singapore trader.
"So people are just taking this into consideration and maybe also that the MAS might change their policy next month. I doubt this will happen though." The trader said the market was wary of central bank intervention to curb Singapore dollar gains, but added that the MAS had not been spotted in the market on Monday. Elsewhere, the Taiwan dollar fell to a 4-1/2-month low at about 33.15 to the US dollar, continuing to underperform other Asian currencies.
"The Taiwan dollar is being recognised as an attractive funding currency, so when there is carry trade interest floating around, that's where the bias for the Taiwan dollar is as well," said Bank of America's Tan.
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