The South Korean won hit a near three-year high on Friday and the Indonesian rupiah crossed a technical resistance line, leading gains in their Asian peers, helped by stock and bond inflows amid emerging expectations that China may be less aggressive in tightening.
Worries about a global economic slowdown and a Greek default, which put pressure on emerging Asian currencies in the second quarter, eased supported by encouraging US data and as Greece's parliament voted for austerity measures needed to avoid default. The euro also extended gains above $1.45.
"AXJ currencies are being supported by three factors at the moment: broad USD weakness, the belief that AXJ authorities are prepared to tolerate more currency strength to deal with inflation and finally new allocations at the start of the quarter," said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore.
The inflows are expected to brighten the outlook for emerging Asian currencies again, but investors still remain cautious in short term, citing uncertainty over the global economy, analysts said.
Earlier, South Korea's foreign exchange authorities and the Philippine central bank were spotted buying dollar, dealers said. "I don't get the sense that we are about to see a wave of fresh inflows. Uncertainty over the global outlook is still high and we prepare relative value trades at this stage, particularly given we are starting to see more intervention from Asian central banks, etc," said Westpac currency strategist Jonathan Cavenagh in Singapore.
The won hit a near three-year high against the dollar on demand linked to foreign investors' stock purchases and exporters' demand for settlements. Some players had to place stop-loss dollar orders. The South Korean currency gave up most of gains as the foreign exchange authorities were spotted buying dollars to slow down its strength, dealers said.
Still, the authorities are unlikely to take aggressive steps to curb the won's strength, given the country's focus on stabilising prices. "The 1,160 level is defended on the authorities, but I don't think they will strongly defend downside. So, market will sell dollar/won on any rallies," said a local bank dealer in Seoul.
The rupiah strengthened past a 55-day moving average for the first time in near two weeks on bond inflows, especially as Indonesia aims to sell 7 trillion rupiah ($812 million) of bonds next week. "I expect this (dollar/rupiah) will head to 8,500 level again and I still believe this psychological level will be broken near term," said a Japanese bank dealer in Jakarta.
The Philippine peso also strengthened past a 55-day moving average, the first time in three weeks, and neared to a 50 percent Fibonacci retracement level of its weakness between May and June. The peso strengthened to as firm as 43.160 per dollar in the afternoon, a notch weaker than the retracement level around 43.150, easily beating the average of 43.242, which was seen as a resistance in the morning. But the central bank was spotted buying dollar at 43.200 and 43.170, limiting its further gains.
The baht is expected to keep under-performing as the general election on Sunday is unlikely to end political uncertainty and dollar/baht remains above a 200-day moving average, analysts said. Dollar/baht's positions still appear to be long and risk appetite is reviving, but that does not guarantee a sharp fall in the pair, they added.