Asian currencies rose broadly against the dollar on Thursday after a rise in global equities pointed to an easing in risk reduction by investors, with the Malaysian ringgit rebounding further following a steep drop earlier this month. The Singapore dollar edged higher, helped by the signs of improvement in risk appetite as well as an upgrade to Singapore's forecast for 2011 economic growth.
The Malaysian ringgit, one of the emerging Asian currencies that has been heavily hit during the dollar's short-covering rally seen so far this month, pulled further away from a two-month low hit the previous day. Emerging Asian currencies have risen in recent months on the back of strong economic growth and rising interest rates. But they have suffered a pullback in May as investors booked profits and covered their bets against the US dollar.
The dollar dipped 0.2 percent against the Malaysian ringgit to 3.0245, pulling away from a two-month high of 3.0470 hit the previous day. The dollar earlier fell as low as 3.0125. Its drop stalled right near support at 3.0134, the 38.2 percent retracement of its rally from a late April trough of 2.9590 up to Wednesday's two-month peak. The dollar also has support against the ringgit at 3.0115 and 3.0110, a couple of intraday lows hit in April.
The ringgit is seen likely to head higher in coming months, helped by market expectations for Malaysia's central bank to raise interest rates further, with analysts bracing for Bank Negara (BNM) to raise rates as early as July after a 25 basis point hike to 3.0 percent earlier in May.
"Given strong domestic demand, we continue to see BNM lifting rates by another 50 bps to 3.50 percent by year-end, provided growth picks up," Charlie Lay, analyst for Commerzbank in Singapore, said in a research note. Malaysia's central bank is likely to raise rates at its next meeting in July and Commerzbank sees the ringgit rising to 2.85 to the dollar by year-end, Lay added.
The Singapore dollar edged higher after Singapore revised up its 2011 forecast range GDP growth to 5-7 percent from the previous forecast of 4-6 percent. But some market players said reaction to the revised forecast was relatively subdued. The move higher in the Singapore dollar was more of a risk-on play, said a trader for a European bank. Singapore also said its economy grew 22.5 percent in the first quarter on an annualised basis, below the advance estimates of 23.5 percent, but broadly in line with market expectations.