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Remarks by an official of China's sovereign wealth fund on Tuesday that the US dollar might have hit bottom sent investors scrambling to cover short dollar positions and put Asian currencies on the defensive. Peng Junming, a staff member of China Investment Corp's (CIC) asset allocation department, also forced a hefty yen retreat with a forecast that the Japanese currency would probably continue to decline.
The US dollar rose more than half a yen to a session high near 92.40 yen on Peng's comments, paring its gains a touch after he said his speech at the Chinese Academy of Social Sciences reflected his personal views.
The official from China's $300 billion wealth fund curbed appetite for emerging market assets after he said gold was too expensive now for the country to buy. His views weighed on Asian currencies, with the Philippine peso and the South Korean won leading Asian losses.
But few analysts took Peng's remarks as a sign that China might opt for earlier tightening, although the rise in yields at Tuesday's auction of central bank bills did give a sense that China was tightening monetary conditions faster than expected.
"The tightening policy has already been started gently and we only expect the central bank to raise rates in the second half of this year," an economist at a global bank in Hong Kong said. "We also expect moderate appreciation of the Chinese currency versus the US dollar by up to 5 percent this year."
PESO The Philippine peso fell nearly 0.3 percent to around 45.71 against dollar by midday, rebounding from an intraday low of 45.77 but below a 45.58 morning high. The peso has gained 1.1 percent vs dollar so far this year.
WON The South Korean won fell against the dollar as investors cover dollar-short positions amid growing caution over intervention by the foreign exchange authorities and as the comments from China briefly pushed the dollar up. The won was quoted at 1,124.4 per dollar, compared with previous day's domestic close of 1,119.8.
RINGGIT The Malaysian ringgit lost a third of a percent to 3.348/USD. "Dollar/ringgit follows dollar/regionals up a bit...at the same time the dollar is also up against majors," said a trader in Kuala Lumpur. Ringgit was consolidating its recent gains after rising one percent to its highest in nearly 16 months on Monday. Meanwhile, one-month dollar/ringgit NDFs edged up to 3.348 in thin trade, virtually at par with the spot.
BAHT The Thai baht gains were halted in sluggish morning trade as the dollar rallied. It fell a tad to 33.05-07 from a morning high of 33.03 and against 33.04 late Monday. "The BOT may have come in to stop the baht from testing 33.00, but it has mainly been stabilised by the CIC comments. It should range from 33.05-08 today and will probably take a week to test 33.00," a Bangkok-based dealer said.

Copyright Reuters, 2010

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