The South Korean won led falls in emerging Asian currencies on Wednesday as investors covered their short dollar positions and booked profits from their recent rebounds, suggesting investors are still risk-averse. Debt worries in Portugal and Ireland, as well as unrest in the Middle East clouded the outlook for emerging Asian currencies, adding to uncertainty over the damage caused by Japan's earthquake, tsunami and nuclear crisis, traders said.
"I still doubt if Asian currencies would rise from these levels. Situation is not getting worse, but that does not mean they have been solved," said a senior European bank dealer in Singapore. "If we see another earthquake in Japan or oil prices jump more with political turmoil within other Arab countries, that will push down Asian currencies and stocks," he added, asking not to be identified as he was not authorised to speak to the press.
Emerging Asian currencies have recovered losses resulted from the earthquake and nuclear crisis in Japan, especially since the Group of Seven rich countries intervened to stem the yen's surge, a move to reduce devastating impact of the currency's gains on Japan's reconstruction efforts.
The Singapore dollar hit a record high against the dollar, which the local currency touched on Tuesday, while the Indonesian rupiah strengthened to a fresh four-year peak in the previous session. Still, emerging Asian currencies will find support again, given relatively stronger economic growth and as the regional central banks are likely to cap their falls to contain inflation, analysts said.
Exporters in Asia will not hesitate to buy them for settlements on dips, they said, which will keep Asian currencies to stay in tight ranges in a short term. The Philippine peso slid on dollar demand linked to fixing and caution over possible dollar-buying intervention by the central bank.
Currency market players expected the central bank to defend 43.30 per dollar, in a bid to slow down the speed of the peso's strength, dealers said. But foreign banks bought the Philippine currency at 43.50 level. Investors are keeping an eye on the central bank's rate meeting on Thursday. Earlier, Governor Amando Tetangco said the central bank was ready to move quickly to combat inflation, signalling it may raise policy rates this week.
The won suffered from dollar-short coverings and importers' dollar demand for payments. The South Korean currency came under further pressure on dollar bids linked to local companies' dividend payments to foreign shareholders. But it found some relief around 1,125 per dollar as exporters such as shipbuilders chased it for settlements on dips.
Societe Generale recommended buying three-month ringgit/won saying higher oil prices may hurt South Korea's growth and boost inflation while Malaysia's growth is seen staying solid with relatively low inflation. Societe Generale advised buying the three-month ringgit/won through non-deliverable forward (NDF) for 371 with a target of 377 and a stop at 367.49.
The won has risen 0.9 Percent against the dollar so far this year, lagging a 1.8 percent rise in the ringgit, amid worries that South Korea may fall behind the curve in fighting inflation. The Singapore dollar fell slightly more as some currency investors booked profits from the currency's recent gains data showing the country's inflation in February eased. Still, the Singapore dollar's falls are seen limited as currency players remains views of the Monetary Authority of Singapore will tighten policy in April, dealers said. Any fall in the Singapore dollar may provide chances to buy it on dips, he added. The Singapore dollar hit a record high earlier, which it touched on Tuesday.