The Singapore dollar hovered near two-week highs Monday, while other Asian currencies were a tad higher as a firm tone in equity markets eased fears of another bout of risk aversion.
China was also in focus after the country's central bank on Saturday lifted interest rates for the third time in less than a year to put a lid on credit and investment.
Dealers said broad weakness in the U.S. dollar on Friday, coupled with speculation about Chinese currency policy and the potential for a tightening in Singapore's monetary policy had triggered sharp gains in the Singapore dollar in offshore trade.
On Monday, the Singapore dollar traded around 1.5260 to the U.S.
dollar, up about a fifth of a percent from late Asia trade on Friday. Late in the global day on Friday it had peaked at about 1.5245 -- the highest in two weeks and a level matching a nine-year peak seen in late February and early March.
"Everybody was selling dollars on Friday and that added momentum to the Sing dollar," said a trader in Singapore. "Some people also think that the MAS (Monetary Authority of Singapore) will encourage a stronger Sing dollar at their next review. I don't think this will happen, but it appears to have helped."
The MAS sets monetary policy through the currency instead of interest rates, guiding the Singapore dollar within a trade-weighted band whose parameters are kept secret.
Dealers said the Singapore dollar could test Friday's highs although wariness about central bank intervention to cap currency gains meant the market was cautious.
Elsewhere, Asian currency markets were watching stocks -- partly to see how investor appetite was faring after China's rate increase.
China raised its benchmark one-year yuan lending and deposit rates by 0.27% each. That brings the one-year deposit rate to 2.79% and the lending rate to 6.39%. "It seems the market had priced in a hike, only the timing was a bit earlier than expected," said another dealer in Singapore.
China's stock index rebounded after opening lower on Monday in response to the rate increase, while other Asian equity markets nudged into positive territory.
Analysts said China's monetary tightening highlighted the need for a further strengthening in the yuan.
"Essentially, the rate decision is consistent with the view that China needs to address the underlying value of the yuan," said Philip Wee, a currency strategist at DBS Bank.
The South Korean won rose to around 942 against U.S. dollar, its highest level in about two weeks.
In contrast, the Taiwan dollar fell to a 4 ½ month low at 33.15 against the U.S. dollar. It continues to underperform other Asian currencies, undermined by weakness in the yen.