Most emerging Asian currencies slid on Thursday as investors cut bullish bets they had placed on the Federal Reserve taking new stimulus steps. After seeing the Fed refrain from new moves, investors hesitated to make further bets ahead of a big European Central Bank (ECB) meeting later on Thursday.
They took profits from the South Korean won and the Malaysian ringgit, the two best performing emerging Asian currencies on Wednesday. The Indonesian rupiah slid on local corporate dollar demand. There has been speculation that the ECB could resume its bond buying programme to bring down borrowing costs for indebted members, especially after President Mario Draghi late last week said the bank would do whatever necessary to protect the euro zone.
Emerging Asian currencies can rise again only if the ECB takes significant measures, dealers and analysts said. At the least, the ECB should restart its bond-buying called the Securities Markets Programme (SMP), said Saktiandi Supaat, head of FX research at Maybank in Singapore
After Draghi's pledge, most emerging Asian currencies stayed firm based on it and on hopes the Fed would ease policy to revive the world's top economy. Dealers said a lack of specific measures from the ECB would be a blow to emerging Asian currencies and other riskier assets. "The thunder must be greater than the lightning. Otherwise, markets will falter," said a European bank dealer in Manila.
The won weakened in subdued trading as interbank speculators covered bearish dollar positions built up on expectations of further Fed stimulus. Foreign investors bought 211.6 billion won ($187.82 million) worth of stocks, extending their buying spree to a fifth consecutive session. But currency dealers said actual demand for the won to make stock purchases was not large.
The rupiah slid in thin trading as local banks bought the dollar on behalf of domestic corporates, dealers said. Indonesian state-run banks were spotted providing dollars at 9,485 per dollar, limiting the local currency's downside, they added. Whatever comes from the ECB meeting, the rupiah is seen underperforming other emerging Asian currencies, given Indonesia's rising trade deficit, a Jakarta-based dealer said.
The ringgit fell as interbank speculators took profits as the Malaysian currency found a resistance line on Wednesday at 3.1100 per dollar, the session's high and a 200-day moving average. The Malaysian currency had been weaker than the average since mid-May. But some domestic banks bought the local unit on dips. The Philippine peso eased as traders unwound bullish bets built up before the Fed statement.
Short-term investors still appeared to hold such positions, hoping for solid measures from the ECB, dealers said. The peso is expected to head further south unless the ECB takes action to ease the single currency area's debt crisis, they added. The Singapore dollar edged up as leveraged funds and interbank speculators bought it on expectations of inflows linked to a battle between Heineken NV and a Thai billionaire for control of the brewer of Tiger beer, one of Singapore's iconic brands.
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