The Singapore dollar hit a three-week low on Thursday on suspected central bank buying of US dollars to cap local currency strength, while wariness about intervention helped keep other Asian currencies in a tight range.
Markets in the Philippines, Malaysia, South Korea, India as well as Singapore have all been watchful this week of official intervention to limit currency gains against a backdrop of firm equities and optimism about economic growth.
Traders said the Monetary Authority of Singapore (MAS) was probably buying US dollars in the market again on Thursday, helping push the Singapore dollar to a three-week trough at 1.5220 per US dollar. The Singapore dollar is down about 0.6 percent from Tuesday's 9-1/2-year peak at 1.5110.
"They are getting increasingly frustrated with Sing dollar strength and will increasingly come into the market," said one trader. He thought the MAS had intervened earlier from the 1.5170 per dollar level to 1.5220.
The MAS is determined to squeeze out short US dollar positions against the Singapore dollar - bets that the US currency will weaken - said Tim Condon, head of research at ING. But such trades are likely to remain in favour given that the central bank has just maintained a moderately tight monetary policy, he said.
The MAS, which uses the exchange rate instead of interest rates to conduct monetary policy, on Tuesday reiterated its stance of allowing "a modest and gradual appreciation" of the trade-weighted currency. "The night before the MAS meeting the Sing dollar was 2.5 percent above the mid-point of its band and very much in intervention territory," said Westpac currency strategist Sean Callow, referring to his estimate of the band.
"Now it's about 1.9 percent above the mid-point, so intervention has helped pull it back." The Philippine peso dipped to the weaker side of 48 per dollar but held near Wednesday's six-year high of 47.90. Dealers said the central bank may have intervened, but any dollar buying was probably smaller than earlier in the week.
"Maybe they were there today and yesterday, but not as actively as they were on Tuesday," said one Manila trader, referring to the central bank. In South Korea, the won touched a one-week high at about 931 per dollar amid foreign buying of Korean shares, which hit a fresh record peak. A move to 930 is expected to be met by central bank intervention, helping to limit won gains.
The won also rose to 7.7895 against the yen its highest since February 27. Markets showed little immediate reaction to a widely expected decision by the Bank of Korea to hold its benchmark interest rate steady at 4.50 percent. A meeting of the Group of Seven industrial nations, starting on Friday in Washington, helped keep most Asian currencies range-bound, dealers said. Analysts say the G7 may renew calls for currency flexibility in Asia, with a focus on China, to help correct global imbalances.
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