Asian currencies were mostly steady on Wednesday amid the year-end holiday season, while optimism rose that the formation of a new government in Thailand after weekend elections would underpin the baht.
The Thai baht was little changed at 33.70 per dollar onshore as the party backing exiled former Prime Minister Thaksin Shinawatra, the People Power Party, tries to form a coalition government after winning 233 of the 480 parliamentary seats.
But a clear picture of who will form a government is unlikely to emerge until the New Year with most parties unwilling to show their hand until the military installed Election Commission finalises the results, expected by January 3.
"There is no impact on the baht (from the elections) so far. The market will see which parties will be the major force for forming a government," said a trader in Bangkok.
"I think the baht will strengthen next year," he added. Some analysts believe the election would pave the way for a new government and pro-growth economic polices next year. "There could be some form of a near-term relief rally in both the equity markets and the currency on the back of the relatively successful conclusion of the elections," Goldman Sachs analysts Michael Buchanan and Mark Tan said in a research note.
They expect the baht to rise to 33 per dollar in three months before pulling back to 35 on a 6-12 months horizon, reflecting near-term optimism which would likely fade. Trading activity remained light as many investors stayed sidelined after the Christmas holiday. The Chinese yuan pulled back to the weaker side of 7.33 per dollar from its post-revaluation high of 7.3270 hit on Tuesday, but traders and analysts believe the retreat would be temporary.
The yuan has gained about 6.4 percent so far this year, trailing behind the Philippine peso, the Indian rupee and the Thai baht. Meanwhile, the Philippine peso picked up momentum after a long market holiday, rising as far as 41.28 per dollar, up almost 0.6 percent from Friday's close.
The Singapore dollar hit 1.4518 per US dollar at one point, but dealers said its further gains were limited by the Monetary Authority of Singapore (MAS), the central bank. "It's very quiet - except the MAS checked earlier when the US dollar dropped below 1.4520, and no one dares to push it down thereafter," said a Singapore-based trader. The trader saw the Singapore dollar moving in the range of 1.4510-40 for the day.
Analysts expect the central bank to tighten monetary policy further by tolerating faster currency rises after recent data showed November inflation jumped 4.2 percent from a year earlier, its fastest rise in 25 years.