Most emerging Asian currencies rose on Tuesday, underpinned by growing expectations of stimulus by policymakers of developed markets to shore up global growth, while investors awaited more economic data from Europe and the United States. The Taiwan dollar gained on incoming foreign funds and the South Korean won found support from stock inflows.
Investors, however, did not make large bullish bets and some opted to book profits ahead of second-quarter growth figures from the euro zone and US July retail and inflation data. German gross domestic product grew a seasonally-adjusted 0.3 percent in the quarter, slightly beating expectations on solid exports and consumption. Still, the euro zone is expected to show a contraction of 0.2 percent in the April-June period, which will put more pressure on the European Central Bank for aggressive action to ease the euro zone's debt crisis next month.
Maybank's FX research head Saktiandi Supaat in Singapore said such a forecast and expectations of the ECB's policy measures has been factored into emerging Asian currencies to some extent. "Weaker data will increase the probability of ECB actions and higher risk appetite," Supaat said.
"A recovery in the euro zone may be seen as positive for global growth. But sentiment and expectations still prevail over pure fundamentals driven factors," he added. Emerging Asian currencies, along with other riskier assets, have stayed firm as deteriorating global growth prospects will keep expectations firmly in place for further stimulus steps from major central banks to bolster growth.
Such policy hopes are expected to keep supporting regional currencies despite some profit-taking limiting their upside, dealers said. "It is very difficult to ignore a global risk-on mood. I will keep looking to buy Asia FX on dips," said a foreign bank dealer in Seoul.
The won advanced on actual demand from foreigners' continuous stock buying and exporters' bids for settlements. Foreign investors purchased a net 422.7 billion won ($373.71 million) worth of stocks in the main exchange, extending their buying spree to a seventh consecutive session.
They have absorbed a combined net 3.9 trillion won in shares during the days, Korean Exchange data showed. But the won gave up some of its initial gains during local trade as traders squared long positions before economic indicators from the United States and Europe.
South Korea's financial markets will also be closed on Wednesday to mark National Liberation Day. The Taiwan dollar gained on foreign financial institutions' inflows and firm domestic stocks. The island's exporters also bought the local currency for settlements, dealers said. But trading was subdued as investors were keeping an eye on data from developed markets, they added. The Singapore dollar edged up on risk appetite and demand against the Malaysian ringgit. The city-state's currency rose up to 0.3 percent to the ringgit at 2.5076.
But the Singapore dollar's upside was limited by caution over possible intervention by the central bank to cap its rallies. The ringgit turned higher against the US dollar in the afternoon as the euro extended gains. The Malaysian currency also has technical support at 3.1221 per dollar, a 100-day moving average. Once the level is broken, it may head to 3.1348, the 38.2 percent Fibonacci retracement of its appreciation between June and August.
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