SINGAPORE: Most emerging Asian currencies fell on Monday, with the Thai baht hitting a five-month low, as hedge funds reduced their exposure to riskier assets after mass euro zone sovereign rating cuts by Standard & Poor's.
Still, traders reported some investors continued to buy regional units on hopes for more inflows to Asia in search if higher yields.
S&P's downgrades, though expected, added to worries about Europe's debt crisis and came as talks between Greece and private creditors on a debt swap deal appear to be at an impasse, boosting fears of a messy Greek default.
Markets are also concerned the euro zone's bailout fund, EFSF, might lose its AAA rating with S&P as well.
The concerns prompted investors to sell riskier assets, pushing down stocks and the euro to near a 17-month versus the dollar.
Still, some investors were looking to buy emerging Asian currencies on dips, given the region's stronger economic and fiscal fundamentals. Last week, most of the regional units rose on inflows.
Many dealers said the downgrades have been largely factored into regional currencies.
"In the first quarter, there will be further weakness in emerging Asian currencies. But with the search for yields, I think there will be cautious and selective moves into safer or higher grade assets in Asia," said Saktiandi Supaat, head of FX Research at Maybank in Singapore.
"So, it will not be a total sell-off of emerging Asian currencies. That will need to be driven by a massive surprise out of the euro zone, which thus far has been priced in, such as a Greek default or a banking meltdown."
S&P late on Friday downgraded the credit ratings of nine euro-zone countries, stripping France and Austria of their coveted triple-A status.
But credit ratings of Asian countries have not been hit yet, with Singapore maintaining its triple-A status. On Monday, the Singapore dollar edged up against the US dollar, outperforming its Asian peers.
"I have no idea on why dollar/Asia has to rise. We have a firm trend to sell euro/Asia and we have not seen massive stock sales in Asia," said a senior Singapore bank dealer.
The city-state's currency hit a near 10-year high against the euro.
BAHT
Dollar/baht rose to as high as 31.99, the highest since Aug. 16, as local and foreign players bought the pair, while its upside was limited by Japanese players, dealers said.
On Sunday, the Nikkei business daily reported Honda Motor will completely overhaul its flood-hit factory in Thailand in a project that could cost more than 50 billion yen ($650 million).
A Bangkok-based dealer said he aims to sell dollar/baht on rallies as some players appeared to hold long positions to clear.
The dollar/baht's 14-day relative strength index (RSI) rose to 66.4, close to the 70 threshold, indicating the pair is approaching to overbought territory.
WON
Offshore funds bought dollar/won, although its gains were capped by dollar supplies linked to foreign investors' purchases of Hyundai Heavy Industries' shares. Exporters also sold the pair for settlements.
Last week, South Korean KCC sold 697.2 billion won ($607.21 million) worth of shares in Hyundai.
Foreigners bought 604.5 billion won of shares on Friday alone, stock exchange data showed, just slightly below the 669 billion won they bought this year through Thursday. Traders said this data suggests that foreigners bought most of Hyundai's shares.
But offers linked to the deal was not as large as some had expected, and some local interbank speculators covered short positions which they built up on hopes of inflows related to the deal, dealers said.
"Market positions among some offshore players seems to be still short and we may see 1,160 again. But I will sell dollar/won around the level on possibilities of dollar-selling intervention there," said a foreign bank dealer in Seoul.
PHILIPPINE PESO
Dollar/Philippine peso rose as investors covered short-positions.
Some players expected further gains in the pair, seeing market as still short.
"I still prefer to buy on dips as risk-off news is still out there," said a European bank dealer in Manila, adding the pair has room to rise to 44.20 and 44.40.
RUPIAH
Dollar/rupiah rose but some investors were looking to sell the pair on rallies, saying dollar liquidity in the onshore market has been improving.
The central bank's chief also said it would continue to intervene in the currency market to guard the rupiah, which is the worst-performing emerging Asian currency so far this year, according to Thomson Reuters' data.
"Our main view on the IDR has not changed by much, as we continue to think that its fundamentals remain supportive in the longer term," said Gundy Cahyadi, an OCBC Bank's economist in Singapore.
"In the near term, what is driving the market is the global risk environment, and the rupiah will continue to be at the mercy of risk appetite. Yet, we have seen improved USD liquidity onshore, and levels above the 9200/9250 in the USD-IDR should attract more sellers back to the market."
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