Emerging Asian currencies largely stabilised against the dollar on Wednesday as markets calmed after a sell-off sparked by North Korea's deadly shelling of a South Korean island. A return of exporters' demand for local currencies and bets by some investors that tensions on the Korean peninsula would eventually ease supported regional markets.
However, the room for gains was limited by renewed worries about Ireland's debt crisis and uncertainty about the aftermath to Tuesday's attack, the fiercest since the Korean War ended in 1953. "The dust is clearing a bit now," said a Manila-based trader. "We are taking a wait-and-see approach, the Korean incident highlighted the risks (that still exist) in the region."
The Korean won was down 0.19 percent against the dollar on the day, while the Taiwan, Singapore, Indonesia and the Philippines currencies gained, recovering some of its Tuesday losses. "I think the damage has already been done to most USD-Asia pairings," said a Kuala Lumpur-based trader. "Year-end short covering should kick in shortly."
The won recovered much of its earlier losses on surging exporters' demand and foreign investors remained net buyers of Seoul stocks. The won, which started domestic trade at 1,175.0, its weakest since September 8, traded at 1,139.65 per dollar. Dealers in Seoul estimated exporters have sold about $1 billion so far. "Shipbuilders kept dumping dollars and some players built up dollar short-positions. If the won returns to 1,130 levels, I think we'd better be cautious over possible dollar-buying intervention," said a foreign bank dealer.