Most Asian currencies held firm on Wednesday, supported by a rise in the yen after reports the Bank of Japan plans to increase its monitoring of carry trade.
The Singapore dollar rose to a 5-1/2-week peak, the Thai baht hit a one-month high at about 37.30 per dollar, and the Malaysian ringgit climbed to about 3.6690 per dollar - its strongest in around 3-1/2 weeks.
Worries that North Korea may carry out another nuclear test led to some caution and tempered sentiment towards the South Korean won which matched Tuesday's one-week high around 953 per dollar before paring gains. The Singapore dollar gained almost 0.5 percent to 1.5740 per US dollar, outperforming other Asian currencies bar the yen.
"There was stop-loss selling of dollar/Sing when we broke through 1.5765," said a Singapore trader. "Most banks have been on the selling side - we had been drifting lower and with dollar/yen lower too, one thing was feeding into another."
The trader said he did not suspect the central bank of intervening to curb gains in the local unit, which has added almost one percent this week. But another trader said the central bank had checked rates in the market, a sign that it might be concerned about currency moves.
"The Singapore dollar is very close to the upper end of its NEER (nominal effective exchange rate) band, according to our estimates," said Dresdner Kleinwort currency strategist Sabrina Jacobs.
"They (the central bank) may let the market have its go and when people are done they may push dollar/Sing back up a bit." Japan's Nihon Keizai newspaper said the Bank of Japan was concerned about carry trades, where investors borrow funds in the low-yielding yen to invest in higher-yielding assets overseas.
The yen rose 0.5 percent from late Asia trade on Tuesday to 118.33 per dollar. The Thai baht showed little reaction to a widely expected decision by the Bank of Thailand to keep its key interest rates steady at 5.0 percent. Interest rates were also in focus in Indonesia, with a senior central banker denying a media report quoting her as saying that interest rates will not be able to fall to single digits by the end of 2006.
Miranda Goeltom, senior deputy governor of Bank Indonesia, was quoted by the Bisnis Indonesia newspaper as saying that the BI rate would not be able to fall below 10 percent this year, even with inflation under control. Traders said the rupiah outlook remained positive following the currency's move through the 9,200 area this week.
"Dollar/rupiah has been breaking lower despite corporate demand for dollars, so sentiment is definitely positive for the rupiah," said a Jakarta trader. "The move below 9,200 means people have been establishing dollar short positions."