Monday, 16 April 2012 16:38
SINGAPORE: Emerging Asian currencies slid on Monday hit by renewed euro zone worries, which are likely to pull regional units even lower in coming days, while the yuan's weakness after China widened its trading band added to the pressure.
Spanish government yields rose on Friday and the cost of insuring its debt against default jumped to a record, pulling down the euro and Asian stocks and triggering stop-loss selling in the Singapore dollar.
On Monday, Spanish government's ten-year bond yields and the five-year yields rose above 6 percent and 5 percent, respectively, for the first time this year.
Emerging Asian currencies are likely to slide more on the persistent concerns over Spain's failure to convince investors it can keep its budget deficit in check, dealers and analysts said.
"Europe is still in the driving seat. The (European) woes will put more pressure on Asian currencies as the dollar will generally strengthen across the board," said BNP Paribas currency strategist Thio Chin Loo in Singapore, adding the Indian rupee is seen more vulnerable than its Asian peers.
China over the weekend decided to allow the yuan to trade up to 1 percent above or below its mid-point everyday, compared with the previous limit of 0.5 percent.
The yuan weakened earlier on the first trading day after the move, trading 0.46 percent softer than the central bank's midpoint at one point.
More two-way trade will increase volatility not only in the yuan, but also in other emerging Asian currencies, Standard Chartered said, advising real money funds to raise currency hedge ratios on Asia ex-Japan equities.
"For real money funds, higher CNY spot realised volatility should feed through naturally to higher volatility in Asia ex-Japan (AXJ) currencies, particular SGD, KRW and MYR," StanChart said in a note.
"For real-money funds which can trade options, we recommend buying SGD, MYR and KRW vol as a cost-effective and liquid way of hedging AXJ portfolios," said StanChart, adding higher realised volatility in USD/AXJ should make buying implied volatility more attractive.
US dollar/Singapore dollar rose to as high as 1.2546 on stop-loss buying on break of 1.2500 and 1.2524, the high of Friday.
Leveraged players bought the pair, trimming short positions, dealers said.
But it is seen facing resistance around 1.2550 where the bottom of the daily Ichimoku cloud sits.
Dollar/won gained on bids related to dividend payments by local companies to foreign investors.
Samsung Electronics and Hyundai Motor Co were scheduled on Monday to pay an estimated 703.4 billion won ($619.79 million) worth of dividends in total to foreign shareholders, according to Reuters calculations.
But investors doubt how further the pair can rise, seeing resistance around 1,140. It has the top of the daily Ichimoku cloud near 1,139.0.
"The recent favor more gains, but I don't see strong bidders to lead further rises, so its upside would be limited," said a local bank dealer in Seoul.
Dollar/ringgit advanced as the euro zone worries led to short-covering and fixing-related demand also supported the US currency.
The pair has room to rise more, probably to a 200-day moving average of 3.0770.
A Kuala Lumpur-based dealer said the pair may head to 3.0800 even, saying the euro is expected to fall below 1.3000 per dollar.
Copyright Reuters, 2012