SINGAPORE: South Korea's won edged up but underperformed some emerging Asian currencies as the central bank unexpectedly cut its policy interest rate to a record low on Thursday, while regional units kept rising on a weaker dollar.
The won opened firmer and briefly fell after the Bank of Korea (BOK) slashed the base rate to 1.25 percent sooner than expected. The move came as the government drives a major overhaul of the struggling shipbuilding and shipping industries that could see large job losses.
Some economists expected a further rate cut.
"The BOK acknowledged the downside risks to growth from corporate restructuring," said analysts for Nomura said in a research note.
"We maintain our call that the BOK will cut policy rates again by 25 basis points to 1.00 percent in October, as we believe growth momentum will slow further in H2 2016 despite the recapitalisation of policy banks," they said, adding that the won will underperform regional peers.
The government and the central bank will create an 11 trillion won ($9.5 billion) fund to support two state-banks most exposed to the country's shipbuilding and shipping industries.
The won lagged its peers as the third-worst performer so far this year with only a 1.5 percent appreciation against the dollar, Thomson Reuters data showed, restrained by expectations of easing by the Bank of Korea.
Still, the South Korean currency managed to post daily gains as investors unwound bearish bets due to the dollar's broad weakness. Some other analysts also saw low chances of a further easing.
"There must still be long dollar/won positions to be cleared. Today's rate cut was not a factor to change a trend of a soft dollar," said a foreign bank trader in Seoul.
So, the won may not weaken much although the Bank of Korea may lower borrowing costs further, analysts and traders said.
The dollar stayed near a five-week low against a basket of major currencies as expectations of an imminent US interest rate hike diminished.
PHILIPPINE PESO
The peso gained 0.3 percent to 45.86 per dollar, its strongest since Oct. 15.
Local traders added bullish bets on the Philippine currency due to the dollar's weakness and recent equity inflows.
Foreign investors bought Manila stocks in recent sessions as incoming President Rodrigo Duterte has promised to boost infrastructure spending to keep the Southeast Asian country on track for growth.
"For the moment, selling (dollar/peso) on rallies is preferred as momentum, despite slowing down a bit, continues to point to the downside," said a senior Philippine bank trader in Manila.
"We may only see a turn once US data goes back to strength and the UK stays in the EU. Otherwise, the Fed will continue to remain cautious."
RINGGIT
The Malaysian ringgit advanced as much as 0.9 percent to 4.0250 per dollar, its strongest since May 18, as higher crude prices eased concerns over the country's oil and gas revenues.
Most of Malaysian government bond prices also rose.
Some traders stayed cautious ahead of a Fed rate policy meeting next week and the June 23 UK referendum on whether to leave the European Union.
"I asked all importers to buy dollars here around 4.02 and 4.03," said a senior Malaysian bank trader in Kuala Lumpur.
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