Emerging Asian currencies slipped on Wednesday as investors cut back on risky assets on escalating worries about Spain's banking sector, while Bank Indonesia's move to support the ailing rupiah along with intervention failed to arrest its slide.
Risk worries also restrained the peso's gains after Tuesday's rating outlook upgrade by Moody's Investors Service as interbank speculators continues to sell the currency and on fixing-related dollar demand. "When we have such a strong USD thrust in the market, it is unclear where the bottom (for emerging Asian currencies) is," said Sacha Tihanyi, senior currency strategist at Scotia Capital in Hong Kong.
"Of course the worst case scenario can be compared with 2008-2009. If that is the benchmark then there is much scope yet for depreciation in Asia ex-Japan," Tihanyi added, referring to the period of global financial crisis.
A government source told Reuters on Tuesday that Spain would likely recapitalise Bankia, which asked for 19 billion euros on Friday, by issuing new debt and possibly drawing cash from the bank restructuring fund and Treasury reserves. "Path of least resistance for USD/Asia FX we think is still up given that the risk appetite decline has grown pervasive," said Emmanuel Ng, foreign exchange strategist at OCBC Bank in Singapore.
Dollar/rupiah leapt on month-end demand from Indonesian corporations and foreign banks' dollar bids, dealers said. The pair's indicative price rose 1.8 percent to 9,550, but market prices were higher with some quotes above 9,600, according to dealers. The central bank has been spotted selling the pair from 9,420 to 9,580 to select banks, dealers said. Bank Indonesia's intervention may calm the rupiah market, some dealers said. "The central bank keeps supplying USD and it is estimated to inject $500 million-$600 million a day recently. Quite a bit of the USD demand has been met by now," said a Jakarta-based dealer.
Dollar/peso rose on fixing-related demand from foreign banks and as interbank speculators bought the pair, dealers said. On Tuesday, the pair slid to as low as 43.205 on stop-loss selling after Moody's upgraded Philippine sovereign rating outlook. "The 43.205 was a bit excessive with global worries still present," said a European bank dealer in Manila. The dealer expected dollar/peso to move between 43.300 and 43.500. The pair is seen having technical resistance at 43.475, the tenkan line, as it ended below the line on Monday. Dollar/peso had been closing local trade above that since May 9.
Dollar/baht hit its highest in more than four months on demand from gold related investors and interbank players, dealers said. The pair rose to 31.815, the highest since January 18. The pair may rise further, probably to 31.920, the high of January 16, as worries about Spain's borrowing costs are likely to keep denting risk appetite. But that level may be a strong technical resistance, analysts said. If the resistance is cleared, dollar/baht may head to 32.11, the 38.2 percent Fibonacci retracement of its 2009-2010 slide. Dollar/won rose on persistent worries about the Spanish banking sector, but South Korean exporters limited its upside.
Exporters' dollar sales for month-end settlements prevented offshore funds and local interbank players from chasing up the pair. "Despite a weaker euro and sluggish stocks, it is difficult to expect a big jump," said a senior foreign bank dealer in Seoul US dollar/Singapore dollar edged up, but European investors and leveraged funds sold the pair on rallies. Investors stayed also cautious over possible intervention by the Monetary Authority of Singapore to cap 1.2800. But month-end demand from Singapore corporations and risk aversion continued to support the pair.