Most Asian currencies gained against the dollar on Tuesday, with the Singapore dollar hitting a 10-year peak amid expectations that rising inflation may persuade the authorities to tolerate faster appreciation.
The Singapore dollar rose as far as 1.5040 per US dollar, up a fifth of a percent from late Asia trade on Monday and its strongest level since early September, 1997. "A lot of people want to sell (the US dollar)," said a trader in Singapore.
"Look at the CPI figure yesterday, which was much stronger than people had expected, they (the authorities) must continue the policy of a strong Singapore dollar," she said. Singapore's consumer prices rose a seasonally adjusted 0.3 percent in June from May, government data showed on Monday, and climbed 1.3 percent from a year earlier, hitting a one-year high.
Singapore's central bank uses the currency as its main monetary policy tool by guiding it in an undisclosed trading band against a basket of currencies. The Singapore dollar has gained 1.9 percent so far this year versus the dollar, trailing in Asia behind the Indian rupee, the Philippine peso and the Thai baht.
Solid economic fundamentals and a modest tightening monetary policy will continue to support the currency, analysts say. "We would continue to focus trading recommendations on more conservative currencies such as long Singapore dollar, where macro policy and economic data continue to point to the need for further FX appreciation," J.P. Morgan analysts said in a note.
The Thai blaxing dollar holdings and spurring capital outflows to help rein in the baht. The baht rose to 33.58 per dollar onshore from around 33.62 before the Thai authorities announced the new rules, while the currency crept up to 29.7 offshore.
Most Asian currencies were stronger against the dollar, which slipped to a two-month low against the Japanese yen and stuck near a record low versus the euro. "I'm surprised that the dollar/won has fallen thus far without any significant resistance from the central bank, and pretty impressed by the price action on the Singapore dollar and the ringgit," said Sean Callow, currency strategist at Westpac.
The high-yielding rupiah rose to a one-week high of 9,035 per dollar as the jitters about the fallout from the US subprime mortgage market eased. The South Korean won rose to a seven-month of 913.50 to the dollar, while the Malaysian ringgit hit a seven-week high of 3.40 per dollar amid speculation that the government could take steps to liberalise currency trading.
Malaysia's central bank is widely expected to keep interest rates steady for its 10th straight meeting later on Tuesday. Callow said he believed the chance of lifting a decade-old ban on offshore ringgit trading remained dim, while any official step to free up capital flows could have mixed implications.
"Personally, I'm not sure why it would necessarily be positive for the ringgit, because any further liberalisation could open up flows in both directions," he said.
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