Trimmed positions weigh on Asia FX, floods hurt baht

SINGAPORE: Emerging Asian currencies fell on Thursday as squabbles between Paris and Berlin and a slide in riskier assets such as the Australian dollar and commodities spooked short-term investors into cutting recently made bets ahead of a European summit this weekend.

The South Korean won lost most of gains made on Wednesday, while the Thai baht underperformed the majority of its Asian peers as the central bank indicated it will be ready to lower interest rates if recent flooding causes a severe economic slowdown.

"Scepticism towards the (Europe) bailout plan is growing. So there is few reasons to be optimistic at the moment, although the market only took the short window of opportunity to buy dollar/Asia," said a European bank dealer in Singapore.

Since early this month, investors have covered short positions in emerging Asian currencies on growing hopes that the euro zone will come up with a decisive and comprehensive plan to solve the continent's debt crisis, including how to recapitalise its banks.

But French President Nicolas Sarkozy said on Wednesday that plans to tackle the euro zone's debt problems have stalled with France and Germany at odds over how to expand the firepower of the region's bailout fund.

On Thursday, EU official said the International Monetary Fund disagreed with EU projections on Greece's debt sustainability and wanted to wait until a clearer outlook emerged before signing off on the next tranche of financial support to Athens.

Markets also continued to worry about lacklustre growth in the United States, after the Federal Reserve's Beige Book report suggested the economic outlook grew dimmer in September.

Weakness in developed markets is already crimping exports across Asia and regional growth is expected to slow down next year, a Reuters poll showed.

"The move lower in USD/Asia witnessed in the past few weeks is now drawing to an end... We see a greater chance of USD/Asia pushing higher from here," said Jonathan Cavenagh, foreign exchange strategist for Westpac in Singapore.

Market positions in dollar/Asian currencies are seen as neutral, Cavenagh added.

But some dealers saw the falls as overdone, saying some speculators built up dollar-long positions.

"Market appeared to become heavy again on uncertainties over the euro zone. I will not add dollar positions here," said a Singaporean bank dealer.

WON

Dollar/won rose as offshore funds and interbank speculators covered short positions.

Stock outflows and importers also supported the pair, while exporters sold it above 1,140 levels.

A European bank dealer said speculators raised dollar/won positions.

"Given increasing risks from the Europe, I won't play shorts, but it does not mean that I would buy dollar more. Everybody seems to have long positions," the dealer added.

BAHT

Dollar/baht rose on continued buying from foreign names amid heavy sell-off in Thai stocks and risk off selling.

The threat of serious flooding in Bangkok is growing because of the volume of water running down from the centre of Thailand, and one inner city area was under threat after floodwater breached a waterworks canal, officials said.

RUPIAH

Dollar/rupiah gained from local names' demand.

Indonesian central bank was spotted selling small amount of dollar at 8,835, dealers said.

Copyright Reuters, 2011