SINGAPORE: The South Korean won and the Philippine peso surrendered some of their recent gains on Wednesday as global investors rushed to take profits from recent rallies in riskier assets and covered yen-short positions against emerging Asian currencies.
The regional units may see a further correction in the near-term if Japan's nuclear crisis heightens risk aversion, although their mid-term bullish trend remains intact, analysts and dealers said.
"I am still bullish on Asian FX but the outlook is getting more uncertain with continuous quakes hitting Japan. It makes investors doubt about the expected positive boost from reconstruction activity - when will it come?," said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong.
"So I guess we should play some relative value," said Cheung, adding she is more bullish on the won and the Singapore dollar for now.
Earlier, Japan raised the severity of its nuclear crisis to the highest level, putting it on a par with the world's worst nuclear disaster at Chrnobyl in 1986, while a key cabinet minister said economic damage from a massive March 11 earthquake and tsunami may be worse than first thought.
Despite worries about Japan, emerging Asian currencies had enjoyed solid gains, especially since coordinated yen-selling intervention by the Group of Seven in the day after the quake helped bring some stability back to regional stocks and bonds.
Asian foreign exchange authorities are now seen as more tolerant toward appreciation in their currencies to cope with imported inflation, analysts said.
Reflecting that view, Indonesian central bank said the rupiah's appreciation was part of its policy response to tame inflation, after it decided to keep interest rates unchanged on Tuesday as expected.
That helped the Indonesian rupiah recover some of its early losses to stand slightly lower on the day.
The central bank is expected to continue to prefer a firmer rupiah than higher rates, analysts said.
"I am not surprised by BI staying pat, much of the monetary tightening conditions is coming via the FX," said Suresh Kumar Ramanathan, regional rates and foreign exchange strategist for CIMB Investment Bank in Kuala Lumpur.
"Raising rates could see an outflow, plus keeping the currency firm in an environment of dollar weakness is less costly (in the sense debt service cost remains low if rates are not raised)."
WON
The won slid as much as 0.9 percent against the dollar, hit by dollar-short coverings among offshore players such as model funds and as foreign investors turned to net sellers in the local stock markets.
The South Korean currency also lost against the yen as investors covered yen-short positions amid a broad strength in the Japanese currency.
The won could not recover much of its earlier losses although exporters including shipbuilders did not miss chances to buy in on dips for settlements, especially when the won stayed weaker than 1,092 per dollar.
"We saw a short-term peak last weak. It will be a key if the won strengthens past the mid-1,090, given its recent quick rise," said a local bank dealer in Seoul.
If investors cover dollar-short positions more, the won may head to 1,102, the level which the country's foreign exchange authorities had defended.
Currency investors showed little reaction to the central bank's decision to leave interest rates unchanged, while signaling that further rises would likely be needed to contain rising inflation. The decision was widely expected.
BAHT
The baht lost up to 0.9 percent against the dollar as foreign bank rushed to cover dollar-short positions, especially before local holidays.
The recent intervention by the central bank also prompted players to cover their short positions.
"Market was overly shorted and that cause more squaring ahead of the long holidays," said a Bangkok-based dealer.
If the Thai currency weakens past 30.24 per dollar, the higher downtrend channel line, it has room to fall to 30.37, a 100-day moving average.
Thailand's financial markets will be closed from Wednesday for the rest of the week.
PESO
The peso also suffered from dollar-short covering and weakened past 43.30 per dollar, a key support level and the 61.8 percent Fibonacci retracement level of its November-January weakening trend.
February's trade data also put pressure on the peso, with export growth at its weakest since Nov. 2009.
But the Philippine currency found support from macro accounts' demand at 43.35, its daily low.
"It is going to trade in a range of 43.00-43.30 again. We need to clearly break 43.00 before it can continue to test lows of Nov. 2010 around 42.50," said a European bank dealer in Manila.
The Philippine central bank had been spotted buying dollars to prevent the peso from strengthening past 43.00, dealers said.
SINGAPORE DOLLAR
The Singapore dollar fell as short-term speculators and leveraged names covered US dollar-short positions.
But the city-state currency recovered some of its losses as the Monetary Authority of Singapore (MAS) is expected to tighten policy further to fight inflation on Thursday.
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