Monday, 28 January 2013 14:01
SINGAPORE: The South Korean won suffered its largest daily fall in 16 months, leading a slide in emerging Asian units spurred by views that some regional authorities may want softer currencies to protect exports and economies as the yen falls.
The won fell as offshore funds sold it and Seoul shares. A member of the South Korean central bank policy board ramped up its warning against a possible surge in capital inflows as a result of the ultra-loose monetary policy led by the advanced economies.
The Taiwan dollar slipped to its weakest in more than four months on stock outflows on selling by foreign financial institutions. In Indonesia, dollar demand by importers hit the rupiah.
"There could be some further pullback in Asian FX. A higher dollar/yen will drag the rest with it and Asian central banks will be happy to see some local currency weakness," said a senior US bank trader in Singapore.
The dealer also expected a "reasonable chance" to see a change in the appreciation trend of emerging Asian currencies.
Until recently, regional units were major targets of investors looking for higher yields with cheap money printed by major central banks, especially the Bank of Japan.
Japanese Prime Minister Shinzo Abe urged the BOJ to hit its inflation target as soon as possible, keeping up pressure on it to make good its promise of bolder action.
Reflationary economic policies to fight deflation had pushed up some emerging Asian currencies to multi-year highs earlier this month.
That created headaches among authorities in other Asian countries as some, especially South Korea, lost price competitiveness and profitability in export markets, although the won was still cheaper than the yen and the dollar were before the 2008-2009 global financial crisis.
Other Asian countries have seen increasing hot money inflows. On Saturday, Bank of Korea Governor Kim Choong-soo said Japan's monetary easing had "created problems." Last week, China's foreign exchange regulator warned of speculative capital inflows.
"The currency war story is starting to grab some attention and people are buying dollars ahead in anticipation of weakening of Asian currencies to catch up with the yen," said a European bank dealer in Manila.
"With Western economies already starting to show some green shoots and bottoming out of their economies, Asia would be seen as a bit expensive right now, unless it closes the gap through weakening of its currencies," the dealer said.
Investors may buy the euro against emerging Asian currencies, he added. Most regional units fell against the single currency, although dealers have not spotted such trades yet on a large scale.
The won ended the local trade down 1.7 percent, its largest daily percentage fall since Sept. 26, 2011, Thomson Reuters data showed. The domestic closing of 1,093.5 to the dollar was the weakest since Oct. 30 last year.
Offshore funds sold the South Korean currency with some stop-loss dollar buying spotted, while local importers joined the dollar bids, dealers said.
Foreign investors reported their largest daily stock sales in 16 months and custodian banks bought dollars.
Some currency dealers said the won's slide may accelerate repatriation from the country's stocks. "We'd better prepare for a level of 1,100 soon," said a senior foreign bank dealer in Seoul.
But some investors looked to buy the won on dips, given South Korea's current account surplus. Westpac said the won's weakness could be a good chance to buy it.
"A spot move towards the 1,100 level is where we would look to initiate a short position in the 1-month NDF, with a stop closer to the 1110 level," Westpac said in a note, referring to one-month dollar/won non-deliverable forwards.
The NDFs rose 0.9 percent to 1,093.0.
The Taiwan dollar touched 29.570 to the greenback, its weakest since Sept. 14 as foreign financial institutions sold it.
The island's currency also came under pressure from stock outflows with foreign financial institutions reluctant to hold Taiwan stocks before long holidays in early February for the Chinese New Year. Taiwan's financial markets will be closed between Feb. 7 and Feb. 15.
Local importers chased the US dollar for payments on expectations for it to rise further.
But exporters took out bids for the Taiwan dollar although the month-end is approaching, dealers said.
The rupiah's indicative prices slid 0.5 percent to 9,690 per dollar, while it traded at levels around 9,790-9,800, dealers said.
The Indonesian currency was under pressure from dollar demand by local importers, while the central bank was spotted providing dollar liquidity at lower levels such as 9,675, according to traders.
On Friday, Bank Indonesia said it had no plans to introduce new instruments to deal with the rupiah's weakness and would continue to intervene in the market where necessary.
The Philippine peso weakened, tracking other Asian currencies and as investors covered dollar-short positions.
Earlier, the peso found some relief thanks to remittance inflows but then the extended slide in other regional currencies prompted investors to unwind dollar-short positions.
Copyright Reuters, 2013