Ringgit, baht outperform; Asia FX could gain more

SINGAPORE: The ringgit rose on Thursday as investors bought back the heavily shorted Malaysian currency, and the baht gained as Thai exporters scrambled to lock in dollar sales, with both currencies outperforming the rest of the region.

As concerns over the European sovereign problems and a slowing global economy eased, Asian stocks and commodities enjoyed short-covering after an intensive sell-off recently. Latin American currencies also firmed.

Still, currency investors remained reluctant to make big bets, limiting gains in emerging Asian units amid uncertainty before the European Central Bank's (ECB) meeting later in the day, with some short-term players covered dollar-short positions.

The ECB is expected to keep rates unchanged at 1.5 percent, but there have been calls for a rate cut in the wake of the sovereign debt crisis in Europe.

"The market is at a crossroad. Some think risk is recovering a bit more, while others are trying to sell risk on rallies," said a senior dealer at an Asian bank in Kuala Lumpur.

The dealer, however, said he is cautiously looking for chances to buy Asian currencies on dips on expectations that the ECB may act to alleviate worries about Europe's debt crisis.

On Wednesday, German Chancellor Angela Merkel said that Berlin was ready to recapitalise its banks if needed, adding some more reassurance following an agreement on Tuesday by European finance ministers to safeguard banks in the face of mounting concerns about a Greek default.

Another dealer at an European bank in Singapore also said he would buy emerging Asian currencies "with pretty strong conviction" on seeing the euro's further rebound for a short-term.

"Market is expecting a rate cut but it's not going to happen," said a European bank dealer in Singapore. "That will lift the euro and keep dollar/Asian offered from there."

Investors, however, stayed worried about the euro zone's debt crisis and a slackening global economy.

The concerns are expected to keep putting pressure on emerging Asian currencies, analysts and dealers said.

Some offshore institutional investors still need to buy the dollar to keep hedging against falls in the regional units, they added, although one dealer said those investors appeared to have completed dollar purchases for such hedges.

Their dollar demand in the non-deliverable forwards (NDFs) market during recent weeks has dampened emerging Asian currencies.

Dollar-long positions against the ringgit were the second-largest after dollar/rupee, a Reuters' poll showed last week.

"Stocks may be driven by valuations and the recent extreme sell-off. But in FX, precautionary dollar demand is still strong and players are unlikely to unwind dollar until the situation in Europe clears," said Thio Chin Loo, a currency strategist with BNP Paribas in Singapore.

RINGGIT

Interbank speculators cleared dollar-long positions against the ringgit as the Malaysian currency has been seen oversold in recent weeks.

They also bought the ringgit a day before the government is set to announce its 2012 budget, which is expected to boost investor confidence and sustain growth.

But the ringgit's gains were limited by dollar demand linked to fixing and model funds' selling.

BAHT

The baht rose on exporters' demand for settlements and as Bangkok stocks jumped nearly 6 percent.

But foreign banks sold the Thai currency, limiting its gains.

The South Korean currency started stronger as interbank speculators reduced dollar positions.

"Players still prefer dollar-long positions on external uncertainty and on strong dollar demand. But I wonder why speculators buy dollars around these levels as the authorities will not allow 1,200 (per dollar)," said a senior foreign bank dealer in Seoul.

RUPIAH

The Indonesian rupiah showed some signs of stabilisation with banks quoting narrower spreads, but fears of more bond outflows continued to keep pressure on the currency.

"BI aggressively intervened in both FX and bonds to build confidence in the market. So we don't need to rush or get panic," said a Jakarta-based dealer, adding he'd like to short dollar/rupiah around 9,020 with targets of 8,850-8,900.

The central bank was spotted selling dollars earlier, dealers said.

But there were strong dollar-bids from corporates and ahead of SBI bond maturity on Oct 13.

The total amount maturing is 20 trillion rupiah ($2.22 billion), with foreign holdings believed to 7 trillion rupiah, IFR Markets reported.

Copyright Reuters, 2011