The Singapore dollar hit a record high and the South Korean won rose to a 2-1/2-year high on Friday, leading gains in emerging Asia, as foreign exchange authorities pulled back their defence lines on domestic currency strength in the face of rising capital inflows.
The combination of robust equity flows into Asia and a revived interest in carry trades will probably keep emerging Asian currencies strengthening in the near term, analysts and dealers said. "Asian authorities have accepted that much of the gain in their currencies is due to general US dollar weakness whilst many central banks are allowing currencies to do an increasing amount of the work to dampen inflation pressures," said Mitul Kotecha, head of global FX strategy at Credit Agricole in Hong Kong.
Hedge funds piled on the move higher in Asian currencies, taking particular interest in the Singapore dollar ahead of a policy meeting of the Monetary Authority of Singapore next Thursday. MAS is widely expected to tighten policy, which it manages through exchange rates.
The Singapore's central bank allowed investors to cross 1.2600 per dollar, which it had been defending. South Korea's currency authorities had not been spotted buying dollars until the won hit a 2-1/2-year high beyond 1,085.00, having moved its intervention levels increasingly lower in the past several weeks, dealers said. In the week ended Wednesday, emerging market equities enjoyed net inflows of $2.7 billion in fresh cash, the fourth-largest weekly tally since 1992, data from Lipper showed.
The won hit a fresh 2-1/2-year high against the dollar as offshore hedge funds built up short yen/won and euro/won positions. The won strengthened to as firm as 1,082.0 versus the greenback during the local trade, the strongest since September 8, 2008. Hedge funds had left dollar offers around 1,085 won, a US bank dealer said.
The Singapore dollar firmed to a record high of 1.2560 per US dollar on surging demand after the central bank allowed market players to cross the line which it had been defending. The Malaysian currency strengthened to as firm as 3.0200 per dollar, the strongest since March 25. Malaysia's central bank was spotted buying dollars, but it also followed its Asian peers lowering levels of dollar bids.