Most emerging Asian currencies eased on Tuesday as investors booked profits from their recent rally after the Federal Reserve's policy stimulus last week, although some still bought them on dips with expectations of more inflows to the region. Interbank speculators reduced bullish positions in the Malaysian ringgit, and the Thai baht, while the South Korean won eased on bond outflows.
The Indonesian rupiah slid on dollar demand from local corporates, and the Philippine peso came under pressure with most short-term peso forwards quoted at a discount. Such depreciations came a day after most emerging Asian currencies were technically seen excessively bought with many of the 14-day relative strength indices (RSI) of dollar/regional unit pairs below the threshold 30. Emerging Asian currencies have risen so far this month as the Fed took a third round of quantitative easing to shore up the world's top economy and on European policy makers' steps to tackle the euro zone's debt crisis.
Still, some analysts predicted more weakness in emerging Asian currencies with a sluggish global economy biting into the export-reliant area, saying optimism from the Fed's stimulus move was likely to fade. "I expect further unwinding of long Asia ex-Japan FX trades that were accumulated prior and during the announcement of QE3 by the Fed," said Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur.
The ringgit weakened as traders cut optimistic bets on the currency, tracking a softer euro. The dollar/ringgit's 14-day RSI rebounded to 36.25. The index stood at 24.77 the previous session, indicating the ringgit was excessively bought. "I won't be surprised if we see 3.08 or 3.09 when the euro drifts lower to 1.30. The Spain problem is slowly surfacing," said a Malaysian bank dealer in Kuala Lumpur.
The rupiah fell on dollar demand from Indonesian corporates and a few foreign banks covered dollar-short positions, dealers said. A Jakarta-based dealer saw the weakness as just short-term corrections, saying he would buy the rupiah on dips. Offshore funds purchased the local unit at 9,500 per dollar. "Surprisingly, the recent momentum of selling dollars ceased and has been replaced by buying demand. But this is just a momentary correction unless we see data showing Indonesia's fundamentals getting worse again," the dealer said.
The Philippine peso slid as traders reduced long positions in the currency amid caution over possible intervention by the central bank and with most short-term forwards staying negative. "Negative onshore swap points were putting pressure on dollar shorts, but I feel that levels at 41.80-41.90 would be good levels to short dollars again as negative external risks have diminished," said a foreign bank dealer in Manila. Most of the short-term peso forwards from overnight to two-months were quoted at a discount, indicating that it was costlier to hold a short dollar position.
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