Central banks in Singapore and Malaysia were suspected of intervening to cap their currencies on Friday after weak economic data and bank earnings undermined the US dollar ahead of a meeting of Group of Seven officials.
The Singapore dollar hit a 10-year high of 1.4577 per US dollar overnight, but it retreated to 1.4640 on Friday. The ringgit rose as far as 3.3585 per dollar, a 9-1/2-year high, then fell back to 3.3648.
These currencies rose overnight after weak earnings at the number two US bank, Bank of America, which led market participants to price in a greater chance of another US rate cut and sell the dollar.
Traders dithered over whether to sell or buy the dollar on Friday, even though analysts said the probability of the G7 making a strong statement in Washington about the weak dollar or other currency values was low.
Cautious market participants pruned their risky positions, buying back the low-yielding yen and selling Asian equities. The Japanese yen rose to its highest in almost three weeks near 114.81 per dollar while high-yielding Asians such as the Indonesian rupiah barely moved.
The South Korean won rose a quarter of a percent to 915 per dollar but the rupiah held steady between 9,090 and 9,100 per dollar. "I have the impression the market prefers to stay short the dollar ahead of the G7, and the market is expecting a confirmation of the strong dollar policy as well," said Fortis Bank's Alvin Cheng.
"It just shows how the dollar bear market is. If there is no strong dollar policy, then expect more dollar selling," he said. The dollar's value against a broad basket of currencies hit a record low of 77.41. The dollar has been undermined this week by softness in US jobs and regional manufacturing activity as well as Thursday's earnings numbers.
"The US economy looks bearish and the interest rate outlook as well is making people sell the dollar," said a trader in Singapore. "I think we will see some profit-taking today before the meeting, but if there is no statement from the G7, then people will still sell the dollar."
Still, offshore non-deliverable forwards on the Chinese yuan showed market players expected the G7 to heap pressure once again on China to let its currency rise faster. The currency has risen just 8 percent against the dollar since it was revalued in July 2005 and allowed to float within a narrow band. The NDF market pushed one-year yuan to 7.0056 per dollar, pricing in an appreciation of 7.2 percent in the next year.
"Based on comments to date, there doesn't seem to be much consensus to tackle the weak dollar, and as such frustration on currency levels could be targeted at the yuan," UBS strategists said in a note to clients. "We think the US dollar is undervalued at current levels, but unless the G7 provides a catalyst for strength in the dollar, we may need to revisit our forecasts," they wrote.
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