The South Korean won and Philippine peso raced to three-year peaks on Monday as hedge funds continued to buy emerging Asian currencies on optimism the US debt crisis has been resolved and data showing strong economic growth in the region. With Monday's data, macro funds appeared to show interest in emerging Asian currencies, analysts said.
Emerging Asian currencies have enjoyed inflows on the region's healthier fundamentals, without major fiscal problems being created, although gains have been contained on risk aversion amid worries about global debt woes. "It is remarkable that inflows continued despite various global risk factors," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, adding that Asian equities saw $2.9 billion inflows in July.
The won hit a near three-year high against the dollar as local interbank speculators and some offshore investors bought it. Foreign investors turned into net buyers of Seoul shares, ending a five-session selling streak. The foreign exchange authorities were spotted buying dollars to defend 1,049 per dollar during the session and to force the South Korean currency to end local trade weaker than 1,050, dealers said.
But the local currency is expected to strengthen further, dealers said. "Dollar/won is falling not because of heavy supplies but because of lack of demand, indicating investors expect further falls," said a senior dealer of local bank in Seoul. Foreign banks' demand for the peso intensified as the Philippine currency strengthened past a psychological resistance of 42.00 per dollar, which the central bank had been spotted defending.
That helped the peso hit its strongest since April 2008. The central bank was spotted buying dollars from 42.00 to 41.90, but their dollar bids were not that strong, dealers said. Earlier, Amando Tetangco, governor of the Philippine central bank (BSP), said the country expects sustained strong capital inflows to emerging markets, given weakness in developed economies, but said authorities have enough tools to deal with a potential increase in domestic liquidity. "From here, I think the market is looking to sell on rallies as USD/PHP has a potential to test 41.50 as the USD/PHP broke through the 42.00 psychological support level," said a European bank dealer in Manila.