Asian currencies were shackled in narrow ranges on Friday as investors awaited signals on the dollar as Group of Eight finance ministers gathered to discuss the global economy and soaring oil and food prices. The Singapore dollar steadied near 1.3780 per US dollar after briefly touching a one-month low at 1.3827.
Analysts at J.P. Morgan said they expected the Singapore dollar to drift lower in the near-term because the currency was too expensive and was vulnerable to a technical unwind, even though it has retreated against the US dollar since April.
"Further out, we retain the expectation for medium-term declines in the US dollar versus the Singapore dollar in view of rising inflation risks, receding growth concerns and continued MAS tightening," Claudio Piron and Yen Ping Ho said in a note, referring to the Monetary Authority of Singapore, the central bank.
The Malaysian ringgit moved between 3.27 and 3.279 to the dollar, while the Thai baht was little changed at 33.14 per dollar. The Taiwan dollar gained a fifth of a percent to 30.38 per US dollar as local stocks rose after the island and China inked a landmark deal to launch regular flights, a sign of warming relations. Elsewhere, the Philippine peso rose as far as 44.31 per dollar, up almost 0.4 percent from Thursday's close as investors moved to cover short positions in the currency.
"It's just a technical correction for the dollar, which faces resistance at 44.50," said a trader in Manila. J.P. Morgan expects the peso to dip to 45.80 by the end of September on the backdrop of higher inflation and widening trade and budget gaps, before recovering to 45 by the end of 2008 as the central bank raises interest rates to quell inflation.
Asian currencies have been weighed down by fears of fallout from lofty oil prices in recent weeks, with latest pressures coming from expectations of higher US interest rates following tough inflation talk by Federal Reserve policy setters.
The dollar fell from a near four-month high against the yen as investors booked profits from this week's rally as G8 finance ministers gathered in Japan to discuss economic issues. Market players were also closely watching the outcome of Ireland's referendum on the European Union reform treaty, with results expected on Friday. "The dollar could get a further boost if the Irish vote no and G8 leaders state their support for strong dollar," said Thio Chin Loo, currency strategist at BNP Paribas.