The Taiwan dollar and the Indian rupee also pushed higher. The Caixin/Markit Manufacturing Purchasing Managers' index (PMI) released on Tuesday showed that China's factory activity picked up more than expected in December as demand accelerated, with output reaching a near six-year high. Market participants said the gains in Asian currencies on Tuesday were mainly due to the trimming back of bullish bets on the US dollar, and of bearish bets against Asian currencies.
"I think positions are still probably a little bit long US dollars, so when we have really positive (Asian) data, I think we'll see some risk getting reduced," said Stephen Innes, senior trader for FX broker OANDA in Singapore, referring to the trimming of long US dollar positions. Analysts cautioned against reading too much into the rise in Asian currencies against the dollar on Tuesday. The dollar could see a pull-back in the near term, but any sell-off in the dollar and gains in Asian currencies will probably be short-lived, said Christopher Wong, senior FX strategist for Maybank in Singapore.
"We remain biased for further US dollar upside and prefer to buy on dips," Wong added.
Emerging Asian currencies have declined broadly since early November as US bond yields jumped on expectations that President-elect Donald Trump's proposals for infrastructure spending and tax cuts will boost US economic growth and inflation. The Singapore dollar rose 0.3 percent to 1.4470 per US dollar, edging away from a 7-year low of 1.4538 set in late December. Data showing that Singapore's economy posted surprisingly strong growth in the fourth quarter helped support the city-state's currency. "Right now we have an official call for MAS to ease policy in April.
But if strength continues into the first quarter, the chance of that happening would be lower," said Michael Wan, an economist for Credit Suisse, referring to Singapore's central bank. Most analysts expect the Monetary Authority of Singapore (MAS) to keep its exchange-rate based policy unchanged at its next meeting in April, although some have said it could ease.