Won erases two-month gains

The South Korean won erased nearly all its gain in June and July by falling for a third week, while most emerging Asian currencies weakened on increasing worries about sovereign debt problems and an economic slowdown in developed markets. On Friday, the won and the Taiwan dollar rose a bit, but investors stayed cautious about the outlook for Asian currencies overall on sustained worries about the eurozone's debt crisis.
"What a crazy week. At least, we can take a breath today," said a Kuala Lumpur-based currency dealer. The dealer said that if the situation does not stabilise, "we are going to see whole markets selling over the next one month."
High-flying emerging Asian currencies have retreated in recent weeks as investors reduced risky exposure amid debt problems in the United States and Europe plus signs that the global economic recovery was losing steam. With the global market panic pushing down emerging Asian units, many analysts expect regional policymakers to ease their fight against inflation.
Some regional foreign exchange authorities were spotted buying their currencies, while announcing steps to reduce market volatilities. The won lost 2.5 percent against the dollar during the last three weeks with a 1.0 percent slide this week, according to Reuters calculations. The South Korean currency has fallen 2.2 percent so far this month after rising 2.3 percent in June and July.
"We don't expect a return to 'risk on' anytime soon and AxJ will still be under pressure," said Andy Ji, Asian currency strategist at Commonwealth Bank of Australia in Singapore, adding that he would advise modest short dollar positions against emerging Asian currencies next week on views that there may be some reprieve from the equity sell-off.
This week, not all of emerging Asian currencies were victims. The Singapore dollar has eased just 0.1 percent so far this week as investors chased safety. The Malaysian ringgit has posted small gains. The Singapore dollar has been a safe haven, especially with Standard & Poor's cutting its triple-A rating for the United States. Singapore has maintained such a rating.
The won slightly ended local trade firmer against the dollar as some traders suspected the authorities of selling dollars. The South Korean currency started up 0.9 percent against the dollar, but then turned weaker on importers' dollar demand and dollar-short covering.
Foreign investors continued to sell Seoul shares, for a ninth consecutive session. They unloaded a combined net 3.09 trillion Korean won ($2.86 billion) worth of stocks during this week, the biggest weekly sales since mid-January 2008. The rupiah shed 0.3 percent on outflows from Indonesian stocks and bonds.
Foreign investors sold a combined net $625.2 million in Indonesian stocks during the previous seven consecutive sessions, according to Reuters data. That compared with a 14-day moving average of net daily sales of $31.0 million. They also sold off $752.5 million of Indonesian government bonds this week.