SINGAPORE: Emerging Asian currencies rose broadly on Wednesday after China's central bank chief said Beijing will continue to invest in euro zone government debt, pushing the euro and riskier assets higher.
The Singapore dollar led gains in Asian currencies, rising 0.5 percent against the US dollar. The Malaysian ringgit and Taiwan dollar followed close behind, with gains of 0.4 percent.
China's central bank Governor Zhou Xiaochuan on Wednesday expressed confidence in both the euro and in the ability of euro zone members to solve their debt problems, and added that China will continue to invest in euro zone government debt.
However, market players cautioned against reading too much into Zhou's comments and the rise in Asian currencies on Wednesday.
"This China commitment is sounding more like a broken record for markets," said Suresh Kumar Ramanathan, Regional Rates/FX Strategist for CIMB Investment Bank in Kuala Lumpur.
"It lacks substance and details and even if there are more funds to the euro zone kitty, it says nothing about solving the issue in Greece," Ramanathan added.
While hopes have grown in recent weeks that Greece will get fresh international aid and avoid a disorderly default next month, the issue is far from settled and the Greek economy is reeling from austerity measures which make its fiscal outlook appear unsustainable.
Euro zone finance ministers have dropped plans for a special face-to-face meeting on Wednesday on Greece's new international bailout, saying political party chiefs in Athens had failed to provide the required commitment to reform.
Sustained worries about the euro zone's debt crisis have prompted investors to reduce positions in emerging Asian currencies and take profits after a solid run-up in January.
"Regional currencies have seen an incredibly strong rally since the beginning of the year," Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong, said in a research note.
Asian equities have also done well and outperformed compared to global equities in general, Tihanyi said.
"We've repeated that the relative surge in the Asian currency complex has been somewhat concerning and could definitely do with a period of consolidation, as officials in a number of Asian countries are busily rebuilding reserves and resisting the pace of appreciation," he added.
SINGAPORE DOLLAR
The US dollar initially pushed higher against the Singapore dollar, but later reversed course.
That lurch lower in the US dollar versus the Singapore dollar caught some market players on the wrong foot, said a trader for a major Japanese bank in Singapore.
The trader said there was talk earlier of sizeable selling in dollar/Singapore dollar that left some market players with long US dollar positions.
Traders were "struggling to get out in a market already positioned long this currency pair the past few sessions," he said.
SOUTH KOREAN WON
South Korean won hit a three-month high against the Japanese yen of 0.0700 yen, just shy of the 200-day moving average of 0.0702 yen, as the yen came under broad pressure following the Bank of Japan's surprise monetary easing the previous day.
"I doubt many people look at moving averages to trade this pair but still a break there could send the won higher, perhaps to around 0.0750 yen," said a trader at a Japanese bank.
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