Most Asian currencies, including the Malaysian ringgit, the South Korean won and the Thai baht, rebounded from multi-month lows on Wednesday as the US dollar paused in its climb against other major currencies. The euro edged higher against the dollar on some short-covering, a day after it hit a six-month low.
Most Asian currencies were buoyed by the dollar's retreat, with the Malaysian ringgit paring losses after hitting a nine-month low on Tuesday. The ringgit inched up by 0.6 percent to 3.37 per dollar, and traders said the local currency was also underpinned by a resounding victory for the country's popular opposition politician, Anwar Ibrahim, in a by-election on Tuesday.
"Anwar is the reason for good sentiment in the ringgit market, and foreign investors were seen selling (the dollar) heavily this morning from 3.39 per dollar," a trader in Kuala Lumpur said. The ringgit had lost 1.5 percent in the past two weeks, largely due to domestic political uncertainty fuelled by sodomy charges and accusations of vote-buying against Anwar.
Analysts at Standard Chartered Bank said they expected the ringgit to fall to 3.45 against the US dollar by the end of September, before recovering to 3.40 by 2008. "Going forward we expect further ringgit weakness on slowing growth and capital outflows," they said in a note.
The South Korean won scrambled up from an earlier four-year low and climbed 0.9 percent to 1,080 to the dollar after traders said the central bank had been seen selling dollars to support the won and officials intervened verbally.
The Thai baht rose 0.6 percent to 34.05 per dollar, picking up from a nine-month low hit on the previous day, after the central bank raised its interest rate by 25 basis points to 3.75 percent. Most investors had expected the rate hike in light of soaring inflation, which hit a 10-year high of 9.2 percent in July.
Analysts said the latest rate increase may be the last tightening this year, and their views were reinforced when Thai authorities said the rate rise would help to reduce the need for future rate rises.
However, some analysts warned of downside risks to the baht. "The Thai economy remains robust, but an amalgam of political risk, real money cross-border equity outflows and potential unwind of the baht long positions by institutional investors implies further risks of downward pressure for the baht," Dwyfor Evans, strategist at State Street, said in a note. The Singapore dollar rebounded from its lowest since January hit on Tuesday, climbing 0.7 percent to 1.4166 per US dollar.
Market players speculated Singapore's central bank, the Monetary Authority of Singapore, may shift its monetary policy away from an inflation-fighting stance to support growth at its next October meeting. "We target the US dollar/Singapore dollar at 1.40 in three months based the assumption that the MAS would move to a modest tightening bias in October," a strategists at UBS said. Additionally, the Philippine peso inched up from an 11-month low touched earlier in the day and the Indian rupee recovered from Tuesday's 17-month low.