The South Korean won and the Singapore dollar gained on Monday on renewed expectations of a revaluation of the yuan after the US treasury secretary said China was in a position to relax controls on its currency. The won gained as much as half a percent to 1,017.5 per dollar and the Singapore dollar strengthened as much as a third of a percent to 1.6544 per dollar. Both currencies are used by speculators to bet on a change in the value of the tightly controlled Chinese currency.
Expectations that China may let the yuan trade in a wider range, and let it appreciate, were triggered by comments from US Treasury Secretary John Snow who said after a G7 meeting that China was "ready now to adopt a more flexible exchange rate".
"While this G7 was never going to see any formal shift in the flexibility call, there is a rising sense of frustration on the issue," said Robert Rennie, currency strategist at Westpac Banking Corp.
"We have long believed that if China was going to adopt more flexibility it would do so before the US economy started to slow again next year," he said, adding that China had taken several steps recently to move towards flexibility.
Premiums on one-month and three-month yuan non-deliverable forwards, used by foreigners to speculate on the yuan's future value, rose to their highest level since early February, indicating that more investors expected an appreciation in the Chinese currency in coming months.
Still, some analysts, such as Thomas Lam at United Overseas Bank, said the gains would prove temporary because China was unlikely to change its currency regime under foreign pressure.
The Thai baht also gained as much as half a percent to 39.57 per dollar. Some analysts think the Bank of Thailand will raise its benchmark interest rate by a quarter point at a policy meeting on Wednesday, helping keep Thai deposits competitive.
ABN Amro Bank said expectations of higher rates coupled with declining oil prices and waning concerns about a possible escalation in violence bode well for the baht.
The country's three-day new year holidays last week passed off without major violence. However, further gains in Asian currencies were curtailed by a continued plunge in Asian stocks.
The benchmark stock index in Japan dropped 3.8 percent while its counterparts in South Korea and Taiwan lost 2.4 percent and 2.9 percent respectively on worries about a slowdown in the US economy, Asia's biggest market. The Indonesian stock index lost 3 percent, dragging the rupiah to a three-year low of 9,579 per dollar.
"The US $tends to find support whenever the global growth outlook turns hesitant," said Fong Cheng Hong, head of economic market research at DBS Bank in Singapore. Worries about a slowdown in the global economy, triggered last week by lower-than-expected earnings at IBM and Samsung Electronics Co, were bolstered by a surprisingly big drop in US consumer confidence reported on Friday.