The Philippine peso led gains among emerging Asian currencies on Monday as weakness in the US dollar had investors covering short positions in the regional units, but caution over possible reduction in the Federal Reserve's monetary easing capped their gains. While the Philippine peso strengthened on solid demand from custodian banks, it still ended not far above last Thursday's near one-year low.
The Singapore dollar advanced on short-covering, while the South Korean won appreciated after strong May trade data. Their appreciation came as the dollar index, which measures the dollar's value against a basket of six major currencies, eased. Still, investors stayed cautious before the May US employment report, due on Friday, might provide clues on whether the Federal Reserve will start cutting its bond-buying programme.
Fed official have said the central bank will only tapering their quantitative easing if economic indicators continue to improve. "The re-pricing of expectations for the Fed's programme remains the paramount driver of Asian FX volatility," Sacha Tihanyi, senior currency strategist for Scotiabank, said in a note. The peso rose on demand from custodian banks, which currency traders said could be linked to stock inflows despite a 3.7 percent fall in the stock market.
"With the stock index down by 4 percent, I wouldn't surprised if there are some bargain hunters in the market," said a foreign bank trader in Manila. Traders in Manila said the peso may strengthen a bit more, although investors stayed wary of the US jobs data. The peso closed on Monday at 42.055 to the dollar. "The dollar/peso can go lower. There is still a lot of time between now and Friday, and room for the peso to strengthen," said a Philippine bank trader.
The Singapore dollar gained as investors covered short positions against the US dollar and the ringgit, traders and analysts said. The city-state's currency rose 0.5 percent to 2.4607 against the ringgit. "The Singapore dollar/ringgit can rise to 2.46/48, so US dollar/Singapore dollar could see more downside pressure," said BNP Paribas currency strategist Thio Chin Loo in Singapore. The baht lost as much as 0.6 percent to 30.480 per dollar, the weakest since January 8 on dollar demand from local importers, traders said.
The Thai currency is likely to weaken further to 30.500-30.600, a cluster of its highs against the dollar in the fourth quarter of last year, analysts said. Once the technical support area is broken, the baht may head to 30.701, the 61.8 percent retracement level of its appreciation between June 2012 and April this year. It weakened past 30.290, the 50.0 percent Fibonacci retracement level.
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