Most emerging Asian currencies had slight gains on Thursday - led by the Taiwan dollar and ringgit on pre-holiday buying by exporters - while the Indonesian rupiah slid on importers' dollar demand. Many regional units barely changed as investors hesitated to make big bets before the European Central Bank's policy meeting later in the day. The ECB is widely expected to leave interest rates unchanged.
But its president Mario Draghi faces a grilling over the central bank's sensitivity to the euro's sharp rise as French President Francois Hollande said the euro zone must develop an exchange rate policy to protect the currency from "irrational movements".
"We expect that Mr Draghi's press conference will be more insightful, with the market likely to be focused on commentary related to the level of the euro following comments from Hollande," said Sacha Tihanyi, senior currency strategist for Scotiabank, in a note.
Most emerging Asian governments have expressed concern over weaker export competitiveness and hot money inflows after their currencies were pushed up by liquidity increases made by major central banks.
Some of them, such as South Korea, warned of possible regulations to cope with the won's strength, especially as the recent plunge in the yen dampened South Korean exporters' competitiveness in key markets. On Wednesday, the won hit its strongest level against the Japanese currency since October 2008, when the global financial crisis was intensifying.
Despite talk of competitive devaluations and worries about excessive yen weakness, emerging Asian currencies will enjoy modest gains in 2013 against the dollar on stronger economic growth and capital inflows, a Reuters poll showed on Wednesday. A European bank dealer in Manila said regional units may appreciate against the dollar after the ECB meeting, which he said may take a brighter view on the euro zone's outlook.
The Taiwan dollar rose as the island's exporters chased it for settlements before the Lunar New Year holiday. The central bank has not been spotted slowing down the Taiwan dollar's gains, traders said, but investors stayed wary of possible intervention. The island's currency market will be closed all next week for the holiday.
The ringgit gained on demand from exporters before Lunar New Year. But interbank speculators covered dollar-short positions as investors remain uneasy about the election due by mid-2013. A senior Malaysian bank trader in Kuala Lumpur speculated that the election could be announced in the second half of February, preventing investors from adding more bullish bets on the ringgit. The rupiah slid on dollar demand from local corporates and after a central bank deputy governor said Indonesia's foreign exchange reserve fell in January.
Bank Indonesia attributed the fall in the reserves to meeting dollar demand from local corporates. But some foreign banks bought the rupiah on dips as state-run banks were spotted providing dollar liquidity, dealers said. "This level of spot should be interesting for those who bought dollars below 9,700 yesterday," said a Jakarta-based trader, adding the central bank keeps trying to support the rupiah.
The Philippine peso started the day weaker as interbank speculators covered dollar-short positions amid sustained caution over potential intervention by the central bank. The won edged lower, following weakness in its forwards overnight, on sustained caution over possible intervention by authorities. "Dollar supplies were pretty heavy, but bids were also pretty firm below 1,090. That confined the won in a tight range," said a South Korean bank trader in Seoul.
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