SINGAPORE: Asian currencies were mixed on Tuesday, with the South Korea won recouping much of the losses it suffered the previous day on news of North Korean leader Kim Jong-il's death, while the Indonesian rupiah fell.
The won climbed 1.1 percent versus the dollar to 1,161.70, bouncing back following its 1.4 percent drop on Monday as Kim's death fanned worries about geopolitical risks.
The Singapore dollar and the Taiwan dollar eked out modest gains. But the Indonesian rupiah retreated nearly 1 percent, which traders credited to month-end corporate demand for dollars and dollar bids from foreign names.
Market players have been reluctant to chase Asian currencies higher recently due to worries about the euro zone's debt crisis and the potential for fund repatriation out of Asia.
Risky assets and Asian currencies are unlikely to rally sharply in the near term given all the uncertainty, said a trader for a Japanese bank in Singapore.
"I think everyone hates the uncertainty... It makes it hard to conduct medium- to long-term investments in a stable manner," the trader said.
Market liquidity was becoming thin ahead of the year-end, he said, adding that market players may be winding down their trading even earlier than usual this year.
"This has been a year dominated by European factors but the euro hasn't fallen all that much in spite of this and I don't get the sense that there are too many people who've made a lot of money," the trader said. "It seems to me that people may be closing shop early because of that," he added.
SOUTH KOREAN WON
The South Korean won may underperform against other Asian currencies over the next couple of weeks given the uncertainty over the situation in North Korea, said Nick Verdi, Asian FX strategist for Barclays Capital in Singapore.
"Beyond that, unless we hear very hawkish noises coming out of the new (North Korean) leadership, I think some of the fundamentals will start to return to the fore for South Korea," Verdi said.
South Korean exports have been holding up relatively well and that could help support the won, Verdi said.
Data released late last month showed that South Korea posted a current account surplus of $2.10 billion in October on a seasonally adjusted basis, up from a revised surplus of $2.08 billion in September.
"I also think that given the size of Korea's FX reserves, which are quite large, if the won did stand out as underperforming the rest of the region, then the Bank of Korea would intervene," Verdi said.
Barclays Capital's forecast is for the won to rise to 1,125 against the dollar in a month and 1,100 three months from now, he added.
On charts, the won's rise on Tuesday pushed dollar/won back below support in the 1,163 to 1,165 area. Such levels roughly correspond to a series of daily highs hit earlier this month as well as in late November and mid-October, and had previously been strong resistance for dollar/won.
CHINESE YUAN
Japan is in talks to purchase Chinese government debt to strengthen economic ties, Japanese Finance Minister Jun Azumi said on Tuesday, a tentative step toward diversification of Tokyo's large foreign exchange reserves.
However, Azumi was careful to point out that Japan's trust in dollar assets remains unshaken.
Earlier, the Nikkei newspaper reported that Japan's foreign exchange fund special account may buy up to 780 billion yen or $10 billion of yuan-denominated government bonds as part of a proposed bilateral currency and financial agreement.
Even if Japan were to go ahead with such buying of Chinese debt, the impact on dollar/yuan will probably be limited, said Junya Tanase, chief FX strategist for J.P.Morgan in Tokyo.
"If dollar selling against the yuan were to take place in order to make such purchases, that could have an impact on the supply-and-demand balance of dollar/yuan, but since that market is managed by Chinese authorities, it is unlikely to have a major impact on dollar/yuan's direction," Tanase said.
Comments
Comments are closed.