Asian currencies were generally steady versus the dollar on Friday, but most were on track for weekly losses as investors fretted about the risk that Britain may vote to leave the European Union in a referendum next week.
The South Korean won eased 0.1 per cent versus the dollar, with trade having calmed down after early volatile trade following a fake report on the death of North Korean leader Kim Jong Un which rattled foreign exchange markets.
The Indian rupee edged up 0.2 per cent on the day, outperforming regional peers after data on Thursday showed that India came within a whisker of a trade surplus in the first quarter.
A recent rise in the Reserve Bank of India’s foreign exchange reserves to a record high has been another supportive factor for the rupee, said Wu Mingze, FX trader of global payments for financial services provider INTL FCStone in Singapore.
Amid the focus on Britain’s June 23 referendum on EU membership, most Asian currencies were on track for weekly losses. The losses were mild, however, as the US Federal Reserve signalled a cautious approach to raising interest rates and that weighed on the dollar.
The ringgit led the weekly declines with a drop of 0.9 per cent versus the dollar. Bucking the broader trend, the Singapore dollar has risen 0.7 per cent this week, outshining its regional peers.
The Singapore dollar is regarded as a safe haven currency within the region because of Singapore’s current account surplus and triple-A sovereign rating.
The rupiah held steady, showing resilience in the wake of a surprise interest rate cut by Indonesia’s central bank on Thursday. Bank Indonesia (BI) cut both its current and future benchmark rates by 25 basis points to 6.50 per cent and 5.25 per cent, respectively.
Indonesia’s central bank will ease monetary policy further if there is room to do so, deputy governor Perry Warjiyo said on Friday, a day after Bank Indonesia cut interest rates.
The Singapore dollar’s nominal effective exchange rate (NEER) has strengthened to around 100 basis points above the mid-point of the Monetary Authority of Singapore’s (MAS) policy band, according to estimates by analysts at Citi.
The rise in the Singapore dollar NEER may have been exaggerated by safe haven flows, they said in a research note.
“If Brexit were to happen, whether MAS re-centres the band downwards will depend on its assessment of the real economy, which may depend heavily on incoming data,” the Citi analysts said.
“While an outsized surge in financial market volatility may trigger market speculation on band-widening, we do not see an immediate urgency to do so, as MAS can simply tolerate larger swings within the existing policy band,” they added.
The MAS manages policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed policy band based on its nominal effective exchange rate.