The Singapore dollar hit a 20-month high against the dollar on Wednesday after the central bank revalued the currency, reigniting hopes that China will soon allow the yuan to appreciate and sparking gains in other Asian currencies. The South Korean won found further support as Moody's Investors Service raised the country's sovereign rating, dampening measures by the foreign exchange authorities to curb the local unit's strength.
Asian currencies are expected to gain further as the region's economy is performing better than others and on views that Beijing may soon loosen its grip on the yuan and allow it to gradually drift higher, analysts said. Central banks in the region may continue to allow their currencies to rise to reduce inflationary pressures, they added.
"We think the initial stage of inflation is positive for Asian FX as it could mean central banks here will allow appreciation to combat rising prices. That will also move forward the market expectation that Asian central banks need to hike interest rates earlier," said Perry Kojodjojo, HSBC currency strategist.
"The consequence of this is that this makes the carry more attractive, resulting in more inflows and causing currencies to appreciate." But foreign exchange authorities in Asia are expected to slow down the pace of gains in their currencies to prevent their economies from losing export competitiveness, analysts and traders added.
"Given fundamentals and policy, the won and the ringgit and all other currencies in Asia have room to rise more this year. But authorities of each countries will decide who will be the final winner this year," said June Park, an economist at Woori Investment & Securities in Seoul.
SINAPORE DOLLAR The Singapore dollar hit the highest in 20 months against the dollar after the central bank aggressively tightened its monetary policy by effectively revaluing the Singapore dollar, saying the economy has fully recovered from its worst ever recession. After the moves, the Singapore dollar gained as much as 1.2 percent to a high of 1.3753 per dollar, the strongest since August 5, 2008.
Traders and analysts said they expected the local currency to gain further. RBC Capital Markets said it continued to forecast a modest gain in the Singapore dollar to 1.36 per the US currency by the year-end.
WON The won, which was boosted early by Singapore's move, extended gains after Moody's upgraded South Korea's sovereign rating to A1 in the afternoon. The South Korean currency ended local trade up 1.05 percent at 1,112.2 per dollar from Tuesday's domestic close of 1,123.9.
"The news will have a big impact as it came when the won was supported by the Singapore's move. Now, the authorities would have a key. I think they will keep defending 1,100 line within the first half," said Oh Suk-tae, an economist at SC First bank. Earlier, the authorities were spotted buying dollars when the won strengthened past 1,115 per dollar level, traders said.
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