SINGAPORE: Emerging Asian currencies fell broadly on Monday and the Indian rupee neared a record low hit in March 2009, with market players bracing for further drops in coming weeks given ongoing jitters over the euro zone's debt crisis.
The Indian rupee touched a fresh 32-month low against the dollar at 51.86, approaching a record low of 52.20.
Traders said India's central bank likely sold dollars on Monday to curb the rupee's sharp fall.
The Indonesian rupiah, meanwhile, fell to its lowest in about two months while the Singapore dollar and the Malaysian ringgit both hit six-week lows versus the US dollar. Analysts said the greenback may see more gains in coming weeks.
"I think the risk/reward still favours the potential for upside in dollar/Asia," said Emmanuel Ng, FX strategist for OCBC in Singapore. "The European situation remains highly uncertain."
"I think we will continue to get indications of slowing growth prospects for Asia," he said, adding that investors seem reluctant to put money into Asia at this point, taking a particularly cautious stance toward equities.
This was underscored with data on Monday showing Thailand's economy grew below expectations by 0.5 percent in the third quarter from the second. Since it is bound to shrink in the fourth quarter because of severe flooding, economists expect the central bank to cut interest rates at a policy meeting next week.
"Unlike maybe a year ago, Asian currencies do not have the luxury of strong capital inflows right now," Ng said. "That will leave them fairly vulnerable to swings in risk appetite."
News that a US congressional "super committee" was expected to formally announce on Monday that its three-month effort to forge a $1.2 trillion deficit reduction plan has failed, weighed on Asian equities and risk sentiment.
"I think the risk is really still on the upside for dollar Asia in the near-term," said Perry Kojodjojo, FX strategist for HSBC in Hong Kong. He said the dollar could extend its gains against the Indian rupee and other emerging Asian currencies if currency hedging by Asian importers gains steam.
"A lot of them (Asian importers) don't really hedge that actively and given where the currency is moving, they may start increasing their hedging profile and if that's the case, you could see dollar/Asia moving higher.
Since India is an oil importer and runs a trade deficit, the rupee may be particularly vulnerable to such importer hedging, he said.
SINGAPORE DOLLAR
The US dollar hit a six-week high of 1.3035 to the Singapore dollar at one point, but later trimmed its gains.
The Singapore dollar's drop on Monday probably brought the currency's nominal effective exchange rate down close to the lower end of the central bank's policy band, a factor that may help limit falls in the Singapore dollar for now, said Emmanuel Ng, FX strategist for OCBC.
How USD/Singapore dollar performs going into the year-end will depend on moves in euro/dollar, Ng said. The euro may fall toward the "low $1.30s" by year-end, and such a drop would open the way for a further rise in dollar/Singapore dollar, he said.
INDIAN RUPEE
Suresh Kumar Ramanathan, Regional Rates/FX Strategist CIMB Investment Bank in Kuala Lumpur, said the recent surge in the dollar versus the Indian rupee seemed to be driven by dollar-buying in non-deliverable forwards (NDFs), which may be a sign of currency hedging by offshore players.
"The pricing of further weakness is being done via the NDF," he said, adding that market players seem to be going long on the dollar in NDFs rather than taking a position in the spot market.
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