Most emerging Asian currencies held firm on Monday after China took another bold stimulus step, while regional units pared some gains on sustained worries about a slowdown in the world's second-largest economy. The People's Bank of China (PBOC) on Sunday cut the amount of cash that banks must hold as reserves, the second industry-wide cut in two months. The central bank lowered the reserve requirement ratio (RRR) for all banks by 100 basis points, which some analysts saw as a larger-than-expected move.
"Although an RRR cut was widely expected, the larger-than-expected quantum of the cut means that the move has yet to be fully priced in," currency strategists for ANZ said in a client note. "There should be a positive reaction in the market in the coming days," they wrote, adding the move is a "slight positive" for Asian currencies.
South Korea's won hit a near three-month peak and Singapore's dollar hovered around late January highs. The Malaysian ringgit touched a near seven-week peak while the Taiwan dollar rose to its highest in almost two weeks.
Still, investors took profits from last week's gains in emerging Asian currencies as some analysts said the PBOC's move emphasised that the Chinese economy was still losing momentum. MSCI's broadest index of Asia-Pacific shares outside Japan also eased. "A short-lived euphoria for Asian currencies on the back of China stimulus may provide some decent entry levels to buy dollars on the cheap," said Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur.
"It is a larger cut in reserve ratio than expected, implying China's underlying growth prospects may have deteriorated more than what the market had anticipated earlier." WON The won rose 0.2 percent to 1,081.3 per dollar, its strongest since January 28.
Foreign investors were set to extend their buying spree in Seoul's main stock market to a 10th straight session. They bought a combined net 2.4 trillion won ($2.2 billion) worth of shares during the period, according to the Korea Exchange data. The won pared some gains on caution over possible intervention by the foreign exchange authorities to stem its strength. Traders also suspected dollar demand linked to local companies' dividend payments to foreign shareholders.
SINGAPORE DOLLAR
The Singapore dollar gained as much as 0.3 percent to 1.3418 versus the US dollar, compared with Friday's high of 1.3411.That was the strongest since January 28, when Singapore's central bank unexpectedly eased monetary policy in an unscheduled policy shift. The city-state's unit is seen staying firm on the recent weakness in the greenback and as the Monetary Authority of Singapore last week surprised markets by holding off further easing, analysts said.
"We extend our target to 1.3210 given the current dollar environment," said Emmanuel Ng, a foreign exchange strategist with OCBC Bank, in a client note.
TAIWAN DOLLAR The Taiwan dollar rose 0.5 percent to 31.000 per US dollar, its strongest since April 7. Traders cut holdings in the greenback, while some funds from foreign financial inflows supported the island's currency. The central bank has not been spotted in the currency market to stem strength in the best-performing Asian currency so far this year, traders said.
RUPIAH Indonesia's rupiah eased as local importers bought dollars for month-end payments. The official Jakarta Interbank Spot Dollar Rate, which the central bank introduced in 2013 to manage exchange rate fluctuations, was fixed at 12,875 rupiah per dollar, weaker than the previous 12,863. Traders stayed cautious over possible intervention by the central bank to support the worst-performing Asian currency so far this year.
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