Asian currencies managed light gains on Monday on the back of a rally in equity markets, with the ringgit edging near a 10-year high, although anxiety about a possible US recession made investors wary of taking on risk. The US dollar held steady above its record low struck last week against the euro after mixed data on Friday.
Figures showed a surprise rebound in US manufacturing activity in January alongside data showing the US economy suffered its first labour market contraction in 4-1/2 years in the same month. But US stocks rose sharply and the Dow Jones Index hit a three-week high, helping MSCI's measure of Asia Pacific stocks excluding Japan post a 2.6 percent jump on Monday.
"The sentiment is generally quite positive and investors were probably pushed to buy into more stocks ahead of the holiday-shortened trading week in some Asian bourses," said Enrico Tanuwidjaja, an analyst at OCBC Bank in Singapore.
With foreign investors playing a substantial role in the region's equities markets, bouts of stock buying tend to lift demand for the region's currencies. The South Korean won hit a 3-week high early on Monday but pared its gains later in the day, while the Taiwan dollar hovered near last week's 20-month high. Both currencies rose due to expectations of increased conversion of earnings by exporters ahead of the Lunar New Year holidays.
South Korea, Taiwan and China will be closed from Wednesday to the end of the week, while markets in several other countries will also shut down on Thursday and Friday. The Malaysian ringgit rose 0.2 percent to 3.2279 per dollar, just short of 10-year highs struck last week after gains of 1.9 percent in equities on the Kuala Lumpur Stock Exchange.
"Given the Dow Jones Index is positive, KLSE should follow, thus allowing us to keep the target of 3.2230 in sight for this week," a trader in Kuala Lumpur said. The Korean won hit a 3-1/2 week high at 941 per dollar before falling back to 942.5 later in the session due to importers selling the local currency.
Analysts said sentiment in the equity and currency markets had improved after the Federal Reserve's two hefty rate cuts in January designed to help the flagging economy.
The Indonesian rupiah regained some footing at 9,205 per dollar after it hit a low of 9,227 in early trades due to offshore demand for the dollar. "The rupiah might have been subjected to some dollar demand from corporates, and is still within the central bank's comfort zone," Tanuwidjaja said.
Analysts said not all Asian currencies were able to track the rallies in stock markets, notably the Philippine peso which fell more than 0.3 percent after it briefly hit an 8-year high at 40.40 but was forced back to the weaker side of a technical resistance level at 40.50.
"Despite the stock market up move, dollar/peso is finding shorts being squeezed. Failure to cleanly break below 40.50 is one reason," said Vishnu Varathhan, an economist at Forecast.