The Singapore dollar rose slightly on Thursday, ahead of expected central bank moves to possibly slow the pace of appreciation in the local unit at a policy meeting, while most emerging Asian currencies recovered initial losses. Most regional currencies started on a softer tone after Standard & Poor's cut Spain's sovereign credit rating to BBB-minus, just above junk territory, citing a deepening economic recession that is limiting the government's policy options to arrest the slide.
The won rebounded after the central bank's expected rate cut and on views that the Bank of Korea is unlikely to loosen policy again soon. Singapore's central bank is seen taking a similar step on Friday by slowing the local dollar's pace of appreciation, but that may not exert pressure on the city-state's currency as such expectations have been priced in, dealers and analysts said.
"The Singapore dollar may weaken more, but there is no reason for a drastic fall. Even if they decide to ease, it will still be an appreciating bias and the Singapore dollar has been pricing in some kind of easing," said Enrico Tanuwidjaja, an Asia economist at the Royal Bank of Scotland, adding he expects the Monetary Authority of Singapore (MAS) to leave policy unchanged.
Technically, the Singapore dollar may weaken to 1.2340 to the greenback, its September 26 low, and the next target would be 1.2367, the 50.0 percent Fibonacci retracement of its August-September appreciation. If the MAS takes more aggressive steps, the Singapore dollar will depreciate further, dealers and analysts said. "If they take more aggressive easing such as re-centering or zero percent appreciation path, the Singapore dollar may go to 1.26 or more," said Maybank FX research head Saktiandi Supaat in Singapore.
Most of 17 economists in a Reuters poll did not expect a change of midpoint and width of trading band nor adoption of a zero percent appreciation path. Currency investors largely ignored the central bank's rate cut as the decision was widely expected. "The rate cut has been reflected enough and many exporters including carmakers were lined up today. They appeared to have been waiting for a rate cut to buy the won," said a foreign bank dealer in Seoul.
The rupiah slid on dollar demand from Indonesian importers and foreign banks, while the central bank was spotted limiting the local currency's downside, dealers said. Actual trades in the rupiah were weaker than indicated on exchange pages with 9,625 per dollar traded, dealers said. The central bank was expected to keep intervening to prevent the rupiah's sharp depreciation, but its grip may not be as firm as before, dealers said.
A Jakarta-based dealer said Bank Indonesia may allow the rupiah to stay softer than 9,600 to spur economic growth. The ringgit recovered all of its earlier losses as it found technical support at 3.0790 per dollar, the kijun line on the daily Ichimoku cloud chart. The Malaysian currency has been closing firmer than the kijun line since late July. The government's approval to lower export taxes on crude palm oil also helped the local currency.