The Malaysian ringgit and the Singapore dollar broke through resistance levels against the dollar in subdued trading on Monday but later gave up some gains as the euro dipped with investors covering dollar-short positions. Emerging Asian currencies may remain firm, but investors doubted whether they will rise much further in the near term given persistent worries about the Greece's debt crisis and weakening US economic recovery.
Regional authorities are also expected to jump into the market to stem rapid gains in their currencies. "The reprieve doesn't represent a definitive improvement in risk sentiment. USD might experience some weakness from softer ISM and weaker jobless claim data. This means AXJs are likely to hold steady against the USD this week," said Andy Ji, Asian currency strategist at Commonwealth Bank of Australia in Singapore.
"While weaker US data will keep USD under pressure which is good for AXJ, weaker prospects in the US economy don't bode well with Asian economies at all," said Ji, adding emerging Asian currencies could come under pressure again. The regional currencies rebounded late last week helped by a firm euro and China's strong fixing of the yuan after suffering from corrections and profit-taking along with the eurozone's single currency and commodities earlier this month.
The euro found further relief after Greek central bank chief George Provopoulos was quoted as saying on Friday that the country will repay its debts in full without restructuring if it sticks to a fiscal austerity plan. "The headlines right now are getting a bit negative with further concerns reports of Greece not hitting fiscal targets looking to constrain EUR upside. If EUR begins to weaken significantly it will constrain and even reverse (if bad enough) AXJ's ability to gain against the USD in the near term," said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong. The ringgit strengthened to as firm as 3.0120 per dollar, breaking through the 55-day moving average of 3.0174 and 3.0133, the 50 percent Fibonacci retracement line of its weakening trend since late April. But it failed to stayed firmer than the 50 percent retracement level as the euro dipped.
The ringgit had been expected to head to the 61.8 percent retracement level of 3.0004, if it clearly breaks through those levels. Market players were cautious over possible dollar-buying intervention by the central bank with it spotted purchasing dollars on Friday around 3.0200, dealers said.
The Singapore dollar retreated after strengthening past a resistance line. Earlier, the city-state's currency broke through 1.2334 per the US dollar, the 61.8 percent retracement of its weakening trend this month, hitting a session's high of 1.2325. With the clear break of the retracement line, the Singapore dollar had been seen heading to 1.2280, the high of May 11. The won gained 0.2 percent, helped by exporters' end-month demand for settlements and as some offshore investors built up short positions. The South Korean currency, however, failed to strengthened past 1,080 per dollar, which the foreign exchange authorities were seen defending on Friday. Importers also bought dollars around the level.