Most emerging Asian currencies rose slightly on Monday, ignoring weak China's economic data, while caution grew on whether the US Federal Reserve will raise interest rates this week for the first time in nearly a decade. The Singapore dollar rose after the ruling party swept a general election on Friday as voters opted for stability. South Korea's won hit a two-week high on demand from offshore funds as the US dollar inched lower against a basket of six major currencies.
The Malaysian ringgit edged up, while currency and bond investors ignored the government's measures to support local stocks and the economy. Regional units pared much of their earlier gains ahead of the Fed's two-day policy meeting on Wednesday and Thursday and markets are still guessing if the US central bank will increase borrowing costs then, or opt for later this year or early 2016.
Prospects on this week's hike eased due to the recent global financial market turmoil and worries about deepening slowdown in the world economy. Expansion in Chinese investment and factory output in August missed forecasts, raising chances that the third-quarter growth in the world's second-largest economy may dip below 7 percent for the first time since the global financial crisis. Any reprieve on emerging Asian currencies from the Fed's inaction this week is unlikely last long, analysts said. "Asian currencies could remain supported if the Fed delays a rate hike this week," said Christopher Wong, a senior currency analyst at Maybank in Singapore.
The Singapore dollar advanced as the ruling People's Action Party won 83 of the 89 seats in an expanded parliament, while the opposition Workers' Party ended up with six seats, less than it held in the previous election. "Given the government's majority of more than 93 percent of the number of seats in Parliament, the 2015 outcome bodes well for the continuity of medium term policies and the sentiment of strategic investors towards Singapore," Barclays said in a note.
The city-state's currency pared earlier gains as investors sold it when it was stronger than 1.4100 per the US dollar on concerns over a slowing local economy. The won gained as much as 0.6 percent to 1,177.4 per dollar, its strongest since September 2. The South Korean currency pared some of its earlier appreciation on dollar demand from importers. That caused some local traders cover short positions in the dollar.
The won has a chart resistance level at 1,176.0, the 61.8 percent Fibonacci retracement of its depreciation since August 11 when China surprisingly devalued the yuan, analysts said. The ringgit earlier rose up to 0.6 percent ahead of news of the government's measures to prop up the economy. But the Malaysian currency gave up most of its earlier gains as oil prices dipped, underscoring concerns over the country's exports. Malaysia is a major supplier of liquefied natural gas and palm oil.
Currency and bond investors shrugged off Prime Minister Najib Razak's announcement that a government equity investment firm would be given 20 billion ringgit ($4.6 billion) to support the domestic stock market. Najib also said that the factory sector would be exempted from import duties until the economy recovers.
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