Asian currencies stable

Most emerging Asian currencies cut early losses to stabilised against the dollar on Tuesday, as dealers squared up positions ahead of a Group of 20 leaders' meeting in Seoul later this week. A stronger fixing for the yuan jolted some regional currencies, such as the South Korean won, out of an opening slide, some traders said.
Market players generally expect the yuan to keep trending higher in the run-up to the G20 meetings starting Thursday.
The notable exception on the day was the Philippine peso, which was dragged lower on speculation the central bank is deliberately exacerbating an onshore dollar shortage to subdue the domestic currency. "I think this is just a momentary bounce in the USD, and sometime soon we'll see a resumption in peso strength, maybe in the next week or two," a Manila-based trader said. The following are reports from Reuters and IFR Markets. The Philippine central bank is suspected of exacerbating a dollar squeeze in the local market by not rolling over its estimated $22 bln forward book, traders say.
In so doing, the central bank has sparked a scramble to shift more short dollar/peso positions into forwards. While spot dollar/peso has jumped about 1.5 percent in the past few days, the pressure on forwards has spilled into the peso IRS market - where floating rates are based on 3-month forwards. Some traders believe the central bank is trying to squeeze the market as an alternative tactic since its daily dollar-buying interventions did little to stem peso gains.
Others think the move was timed to ward off inflows after the Fed agreed last week to inject $600 billion into the US economy. There are also others who cited talk that authorities may clamp down on onshore NDF trade. One-month forwards have plunged nearly 200 points in the past week, sparking a sharp drop in short-term swap rates.
One-year swap rates have dropped 150 bps in the past week to fix at 2 percent Tuesday - way below the central bank's 4 percent policy rate. Traders say the move will not do much to dissuade market players from building up long peso positions. The won recovered from its lowest level in more than a week to end the day largely steady. Foreign investment in stocks and exporter bids picked up the won from early lows which had been prompted by the euro's weakness and worries that South Korea authorities might take steps to hold back hot money flows.
The won was quoted at 1,113.3 per dollar, up marginally from its previous domestic close of 1,113.5. Earlier, it dropped as far as 1,120.3, the weakest since November 1. "Initially, a weaker euro caused dollar-short covering, but as it found some support, and with the aid of the firmer yuan-fixing, market sentiment changed," said a foreign bank dealer.
Still, investors remain wary that authorities might try to stem the won's strength, such as through capital regulations or dollar-buying intervention. Foreign investors were net buyers of Korean stocks and have purchased a net 1.6 trillion won in stocks in the past five straight trading sessions.