The South Korean won on Friday hit a two-month low and most emerging Asian currencies were set for losses this week - and facing more downside next one - as worries about global growth made investors shun risk assets. Growth concerns prompted investors to reduce long positions in some regional units against the safe yen, which they built up after the Bank of Japan's surprise policy-easing in February.
Emerging Asian currencies are likely to stay next week, especially if markets see further signs of economic slowdown in China. Some investors have started hedging against the possibility of a China hard landing by selling the Australian dollar. Still, dealers and analysts say that most investors do not expect a severe slowdown in the world's second-largest economy.
As a result, emerging Asian currencies "have not priced in a China's hard landing scenario yet," said Saktiandi Supaat, head of FX Research at Maybank in Singapore. Any further signs of a sluggish China economy will put more pressure on regional units, he said.
Among emerging Asian currencies, the Indian rupee has had its worst week since late November, losing 2.0 percent against the dollar through Thursday, according to Thomson Reuters data. Indian markets were closed Friday for a holiday. The rupee, still the best performing emerging Asian currency this year, came under further pressure from worries about fund outflows and dollar demand from oil importers.
The won followed the rupee with a 0.8 percent fall versus the greenback. Dollar/won rose to 1,135.4, the highest since January 20, slightly higher than a 100-day moving average resistance, which currently stands at 1,135.2. Short-covering among offshore funds and dollar demand linked to dividend payments by local companies lifted dollar/won, dealers said.
The pair was also supported from bids related to yen/won short-covering, some dealers said. As dollar/won ended the local session above the 100-day moving average, it may rise to 1,139.1, the 50 percent Fibonacci retracement of its January-March slide. US dollar/Singapore dollar slid after China's strong yuan fix. Earlier, the People's Bank of China fixed the yuan's mid-point at 6.2891 per dollar, the strongest since the 2005 revaluation. But investors hesitated to sell US dollar/Singapore dollar and other dollar/Asian pairs as Beijing is seen as widening the yuan's trading band.
"We believe that the strong fixing does not reflect a new desire for appreciation but rather is a way to show higher two-way volatility," Dariusz Kowalczyk, senior economist and strategist for Asia ex-Japan at Credit Agricole CIB, said in a note. Currency investors showed muted reaction to data showing Singapore's February inflation was slower than expected as authorities said inflation will likely remain elevated in the first half of 2012.