SINGAPORE: Emerging Asian currencies may face more corrections ahead after worries about high oil prices on Monday caused investors to trim positions in the regional units against the dollar and the euro.
Oil importers bought dollars, putting pressure on some of emerging Asian currencies, dealers said.
Some investors bought the regional units on dips, expecting sustained fund inflows to the region and encouraged by signs of fresh steps by the Group of 20 major economies to contain the euro zone debt crisis.
Still, those players cut their holdings in emerging currencies again as they stayed wary of how high global oil prices could hurt growth and spur inflation.
Brent crude slid below $125 per barrel but concerns remained over supply disruptions connected with Iran's disputed nuclear programme.
"Market is getting more concerned over oil prices. If Brent breaks through $130, that will dampen overall risk assets including Asian currencies," said Jeong My-young, a currency strategist at Samsung Futures in Seoul.
Higher oil prices will boost import bills and inflationary pressure for many Asian countries. Some Asian policy makers have warned of rising prices because of inflows to the region following liquidity increases by major central banks.
Rising prices have triggered shake-outs of long positions in emerging Asian currencies in the past years.
Emerging Asian currencies may suffer further profit-taking, especially in the wake of gains this year, analysts said.
Sailesh Kumar Jha, head of Asia market strategy at SEB in Singapore, said the South Korean won would be most vulnerable to a correction. He expects the won to weaken to 1,165 per dollar by the end of the first quarter, compared with about 1,130 at present.
But it was premature to conclude that higher oil prices will mean the end of emerging Asian currencies' recent bullish trend, dealers and analysts said.
"It is supply-push rise in oil prices and inflation which central banks can't control. Demand-push inflation is still weak," said BNP Paribas currency strategist Thio Chin Loo in Singapore.
She added that the weakness in emerging Asian currencies would provide investors with chances to buy them on dips.
A senior dealer at a Malaysian bank in Kuala Lumpur said he has not spotted major funds pulling money out of Asia yet.
Investors stayed relieved as the euro was supported by the European Central Bank's three-year, low interest loans facility, he added.
"With higher oil prices, economic growth will suffer and inflation will go higher... But if major funds pull out, where would they put their money?" the dealer said.
RUPIAH
Bond outflows boosted dollar/rupiah to above the top of the daily Ichimoku cloud at around 9,070.
"Foreign players are selling government bonds, they want to buy USD. There are fears a possible fuel price hike will affect inflation. If inflation rises, bond prices will decline," said a trader at a foreign bank in Jakarta. "BI seems to cap at 9,200. Regional currencies also weaken against USD."
The pair has been supported by outflows from Indonesia's stock and bond markets.
The country's 10-year bond yield has been spiking up on worries about inflation.
Removal of fuel subsidies could trigger higher inflation, which in turn could prompt policy reversals by the central bank.
Offshore players could shift portfolio flows to markets seen as providing more upside, such as Thailand, analysts said.
WON
Dollar/won rose on demand from South Korean importers. Offshore players including hedge funds actively bought the pair, dealers said.
Local exporters took the gains as chances to sell for month-end settlements, especially around 1,130, but the pair may rise further with offshore names' demand, dealers said.
"Without exporters, the 1,130 would have been easily cleared. If uncertainties such as rising oil prices persist, it is opened to 1,138," said a local bank dealer in Seoul.
The pair has 60-day and 120-day moving averages around 1,139.
PHILIPPINE PESO
Dollar/Philippine peso rose above resistance around 43 as investors covered short positions, and dealers said more short-covering may lift the pair further.
The pair gained to as high as 43.110, breaking through resistance at 43.016, the 38.2 percent Fibonacci retracement of its December-February slide.
It may rise to 43.200, which will be above its 200-day moving average at 43.137, as the market is still in a short-dollar position, a European bank dealer said.
The next resistance levels are 43.306, the 55-day moving average, and 43.33, which is the 50 percent retracement and may be hard to breach.
BAHT
Dollar/baht rose on short-covering as the pair faced a firm support at 30.20, the 76.4 percent retracement of July-January rises.
But investors were reluctant to buy the pair further for now as it has a resistance around 30.50-30.53, dealers said.
The pair is seen moving between 30.20-30.70.
Last week, the baht was the best performing emerging Asian currency thanks to inflows into Thailand including Japanese insurance payouts for the recent floods.
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