The Malaysian ringgit and the Philippine peso slipped on Tuesday in thin trading as interbank speculators reduced exposure to emerging Asian currencies on concerns over a weak global economic recovery. However, major funds and large investors have stayed on the sidelines so far, helping emerging Asian currencies limit downside, dealers said. Some investors appeared to be changing their bullish views on the regional units, but very slowly, they added.
Global growth worries may cause more position adjustment in emerging Asian currencies, but demand for the region's higher-yielding currencies will stay strong as long as Asia's economic growth remains stronger than other developed markets and policymakers keep focusing on inflation fighting, analysts and dealers said.
"It's all about growth and inflation trade-offs now for Asian central banks. Some have the tools to use admin measures to keep inflation at bay whilst some do not," said Saktiandi Supaat, head of FX Research at Maybank in Singapore. "Downside risks to growth remain, but intra-regional trade may support AXJs in terms of real flows if we exclude all the flows from G7."
Asian economies have shown resilience while growth in the US and Europe has slowed. To fight inflation, some Asian nations have raised interest rates and let their currencies appreciate. That allowed higher-yield hunting investors to keep the bullish outlook for emerging Asian currencies. The regional units may see more corrections amid risk aversion, but profit-taking would provide chances to buy some of them on dips, analysts said.
"The best risk-adjusted plays in Asia at the moment are China, Indonesia and India from a currency perspective," Richard Yetsenga, Global Head of FX Strategy at ANZ Research, told Reuters TV. "Indonesia and India offer some reasonable yields. Indonesia is likely to be upgraded to investment grade, and in a world where we think about countries more often being downgraded, I think the upgrade story across an investment grade threshold is quite powerful," Yetsenga said.
The ringgit fell against the dollar as interbank speculators covered dollar short-positions. Dollar/ringgit rose 0.9 percent to 2.9625 before easing. But the pair is seen having a resistance around 2.9690, high of July 29, while the 14-day Relative Strength Index (RSI) stood at 40.4, above the threshold 30, indicating dollar/ringgit is not in oversold territory yet.
The brighter outlook for overall emerging Asian currencies is expected to relive the Malaysian currency, dealers said, adding major funds or big players have not appeared to cover dollar-short positions yet. A dealer in Kuala Lumpur said a weaker ringgit is natural, given a softer euro. But he said the falls were "not much" adding "USD/Asia is still very heavy as Asian currencies are a kind of safe haven now." Dollar-short squeezes prompted the peso to weaken past 42.00 per dollar, which the Philippine currency breached stronger on Monday.
The dollar-short covering intensified in the afternoon as the euro slid below 1.4200 per dollar. On Monday, the 14-day dollar/peso RSI weakened to 24.4, the lowest since mid-April last year. The won ended local trade almost unchanged as exporters' demand for settlements offset risk aversion.
Dealers also said the South Korean currency did not reflect the global economic slowdown as the local unit had not risen enough on intervention by the foreign exchange authorities. On Tuesday, the authorities were spotted buying dollars around 1,049 per dollar and forcing the won to end domestic trade weaker than 1,050, dealers said. Dealers retain upbeat views on the won, but some expect more dollar-short covering. "Offshore investors have not started covering dollar-short positions, but they will adjust the positions if dollar/won continues to not break through 1,050," said a foreign bank dealer in Seoul.
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