The Singapore dollar hit a record high for a second day on Friday after the country's central bank allowed more appreciation, though it was vulnerable to near-term profit taking, especially if the rise in other Asian currencies slows. Accelerated appreciation of China's renminbi has underpinned a broad rise in emerging Asian currencies, with short-term investors jumping on the strengthening trend on expectations authorities will let their currencies climb to keep inflation at bay.
"Even if (the Monetary Authority of Singapore) was less aggressive (than expected), expectations for SGD appreciation can still be high - a less aggressive MAS now means higher chance for tightening again in October," said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong.
"If China allows the RMB to appreciate, that may allow central banks in the other Asian countries to be a little more relaxed about their own currencies rising, and at the margin may give them more comfort about increasing interest rates," said Christopher Gothard, Head of FX for Brown Brothers Harriman in Hong Kong.
The Singapore dollar strengthened to as firm as 1.2432 per US dollar, having risen around 1 percent this week. Singapore's currency gave up some gains later in the session on renewed caution over possible intervention by the MAS to check the speed of its gains.
Andy Ji, Asian currency strategist and economist at Commonwealth Bank of Australia in Singapore, said the Singapore dollar has room to strengthen more, probably to 1.2400, with his estimate of a re-centering of 50 pips out of a 250 pip band, which is rather modest.
The ringgit tried to extend gains on demand from fresh leveraged names and short-term speculators. But the Malaysian currency found strong resistance as the central bank was spotted buying dollars at 3.0180 per dollar, a bit lower than their bids at 3.1090 on Thursday, dealers said. The won shed 0.4 percent against the dollar, under performing its peers, as importers bought dollars for settlements.