SINGAPORE: Emerging Asian currencies slid on Tuesday as risky assets were hit following a warning by Standard & Poor's that it may cut credit ratings of European countries, while the Philippine peso came under pressure from weak inflation data.
Investor confidence on the region's currencies has slowed on growing worries about inflation in emerging Asia and the festering euro zone crisis.
The Asian Development Bank lowered forecasts for growth in emerging Asia for this year to 7.5 percent from 7.6 percent, and for 2012 to 7.2 percent from 7.5 percent.
"US (dollar) demand will persist as banks recapitalise to strengthen their balance sheets to contain contagion," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.
"The coming two quarters will undoubtedly be challenging for Asia ex-Japan currencies and we expect dollar/Asian currencies higher from here," Ji said, adding he would buy dollar against the regional units on dips.
Emerging Asian currencies already suffered from profit-taking on Monday ahead of a key European summit late this week.
S&P warned it may carry out an unprecedented mass downgrade of euro zone countries if EU leaders fail to deliver a convincing agreement on how to solve the region's debt crisis at Friday's summit.
The warning pushed down Asian stocks and the euro, as well as Latin American currencies.
To ease worries about the euro zone's sovereign problems and support riskier assets, the summit needs to produce results which will lead the European central Bank (ECB) to buy more bonds, said Olivier Desbarres, head of FX strategy for Asia Pacific ex-Japan at Barclays Capital.
"Ultimately what the markets want to hear is the ECB saying it's committing substantial resources to buying bonds," Desbarres said. "But for that to happen, you need a successful EU summit. Let's assume we have a successful summit, how much longer will we have to wait before ECB makes that commitment. The market is going to very quickly look beyond the EU summit."
If risk assets rally, he expects currencies such as Indonesian rupiah and the Indian rupee, which have underperformed, to outperform.
PHILIPPINE PESO
Dollar/peso rose after slower-than-expected inflation data and weaker risky assets around the globe. The Philippine central bank said it was willing to ease monetary policy early next year if the outlook for growth worsened.
Investors were however reluctant to make big bets, ahead of the European summit.
"I am cautiously optimistic," said a European bank dealer in Manila. "But politicians are too unpredictable."
The dealer said investors may buy dollar/peso on possible weakness in the euro after the summit, but the pair's gains may be limited by remittance inflows.
SINGAPORE DOLLAR
US dollar/Singapore dollar rose on risk-off sentiment and the pair may rise to 1.2912, the 38.2 percent Fibonacci retracement of its slide between late Nov and early Dec.
It found support at the previous low of 1.2765, near another 38.2 percent retracement of its Oct-Nov rise.
BAHT
Dollar/baht rose on risk aversion, but it remained stuck in a narrow range.
Exporters sold the pair, inflows to Thai stocks and bonds limited its rises.
WON
Interbank speculators bought dollar/won on a weaker euro, while South Korean exporters sold the pair on rallies, capping its upside in subdued trading, dealers said.
Some dealers expect the pair to give up its rises more if the euro rebounds, saying players appeared to have long positions to clear.
"The market got heavier and we may see lower levels if the euro rises. But I don't expect much," said a senior foreign bank dealer in Seoul.
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