Stock sell-off hits won, rupiah; intervention sighted

SINGAPORE: The South Korean won and the rupiah continued to suffer from heavy outflows from stocks on Tuesday amid talk that funds were unwinding heavy short euro positions against emerging Asian currencies, although falls were checked by regional policymakers.

Some Asian foreign exchange authorities, especially in Indonesia, South Korea and Taiwan, were spotted selling dollars to stem weakness in their currencies, dealers said. The Taiwan dollar, helped by intervention, outperformed most of its Asian peers.

The regional policymakers are likely to keep providing relief to their currencies, which are expected to stay weak as investors are likely to keep reducing risk exposure in a global rout, analysts and dealers said.

"We are on a slippery slope currently and any volatility that the authorities can control, they will try to," said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong.

"Given that high financial market volatility increases the negative downside risks to growth outlooks, and the softening in commodity prices, these central banks may be more amenable to entertaining FX weakness. However, stemming volatility will also be a concern."

Asian foreign exchange authorities had tried to slow down their currency appreciation, although their dollar-buying intervention was seen as less active than last year as they are fighting inflation.

The regional currencies had been a popular item as investors sought higher-yielding units in Asia, which has had stronger fundamentals and tighter monetary policies.

Prior to this week, speculative accounts bought currencies tied to the Asian growth story and sold the euro due to the ongoing sovereign debt crisis in Europe.

The extreme sell-off in risk assets has forced funds to square-up all risk positions and sell Asian currencies as well.

"Clearly, the risk factor dominates in the near-term, which pressures down Asian rates and FX. I have closed all my recommendations to pay Asian rates," said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong.

WON

The won recovered some losses as the authorities were spotted selling dollars, especially around the dollar/won's session high of 1,096.1, to check the local currency's weakness.

Exporters also bought the South Korean currency for settlements.

The won shed 0.7 percent against the dollar, but off from its earlier loss of up to 1.2 percent.

Some dealers see stabilisation in the won with the 14-day dollar/won Relative Strength Index (RSI) above the 70 threshold, indicating the pair is in oversold territory.

Foreign investors sold a net 770.4 billion Korean won ($711.6 million) in stocks, outpacing their net purchases of bond futures of 755.4 billion won.

Bond inflows have supported the won.

RUPIAH

The Indonesian central bank was spotted buying the rupiah, as continuous foreign investors' stock sales put pressure on it.

The Indonesian currency slid 0.6 percent to 8,555 per dollar, breaking through the 50 percent Fibonacci retracement of its appreciation since late June.

"The central bank has been actively supplying the dollar to maintain FX volatility," says an Asian bank dealer in Jakarta, adding BI was seen at the moment.

Copyright Reuters, 2011