SINGAPORE: The South Korean won and the Philippine peso led emerging Asian currencies lower on Thursday, dragged down by rate cut expectations and absence of clear signs from Europe to improve its ability to refinance debts.
The prolonged crisis and its impact on the global economy are expected to keep putting pressure on emerging Asian currencies.
Most of the regional units have strengthened so far this year, even though the euro broke through a $1.30 support, which may indicate they have not reflected the problem enough yet, analysts said.
"A number of Asian currencies are increasingly unstable given the risk of a EUR/USD decline... Asian currencies that were not reacting to the euro's decline the past few days may see sharp weakening," said Suresh Kumar Ramanathan, regional rates and foreign exchange strategist for CIMB Investment Bank in Kuala Lumpur.
Once the euro breaches 1.2856, the low of Dec 29 last year, it may head to 1.2584, the low of Aug 24, 2010, he said.
Investors are keeping an eye on French bond auction where Paris plans to raise up to 8 billion euros in long-term debt a day after a subdued German bond auction. Berlin attracted only slightly better demand than was seen at a disastrous sale last year.
But some analysts see the risk of further falls limited as they see some fresh asset allocation to the region.
On Thursday, the Indian rupee, the worst performing Asian currency last year, benefited from inflows from real money funds, dealers said.
"The euro remains centre stage but there are some signs that Asian currencies are moving off in their own direction. Data is not too bad and the market has got itself very bearish on the EU. situation," said Jonathan Cavenagh, foreign exchange strategist for Westpac in Singapore.
"So risks from my perspective are the market rallies on any positive news."
Earlier last year, emerging Asian currencies had been 'must-have items' among investors as the region's economic growth and inflation are higher than developed markets.
Saktiandi Supaat, head of FX Research at Maybank in Singapore said he heard of increasing asset allocation to Asia-ex Japan, which could support emerging Asian currencies.
"But the overall weight around the ankles - the eurozone sovereign issue and the weak economic growth, will weigh them down, with the dollar and the yen main beneficiaries in the first and second quarters this year," he said.
PESO
Dollar/Philippine peso rose on short covering after data showed inflation in December was the slowest in 11 months and below market expectations.
The pair gained as much as 0.6 percent to 44.01.
The central bank later said it has room to cut interest rates.
Currency players in the Philippines largely ignored the sovereign $1.5 billion global bond sale which was eight times oversubscribed.
The strong demand underscored appetite for assets in emerging markets, but a trader said investors remained worried about the euro zone's debt problems.
WON
Dollar/won ended local trade higher on demand from South Korean importers and custodian banks. Some interbank speculators covered short positions and added long bets.
The pair has support around 1,145, which it has failed to clear three times in the past two weeks.
Earlier, dollar/won turned lower on offers from exporters and offshore funds.
"It is always possible to see 1,160 as long as the euro falls more," said a senior foreign bank dealer in Seoul.
BAHT
Dollar/baht gained on importers and a higher US dollar/Singapore dollar, which dealers said is poised to rise more on short squeezes.
But stock linked inflows and Thai exporters were seen capping rises in dollar/baht ahead of 31.60, dealers said.
RUPIAH
Indonesian corporate demand and foreign names' bid lift dollar/rupiah.
But the pair is unlikely to rise to above 9,200 as the central bank is expected to intervene to cap its' rallies.
RUPEE
Dollar/rupee fell below 52.91, the 21-day moving average, which has been solid support since mid November 2011.
Real money funds, interbank speculators and exporters sold the pair, dealers said.
Multiple failure to test top of Dec 15-16 gap at 53.62 caused investors to clear long positions.
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