SINGAPORE: Emerging Asian currencies were mostly steady to weaker on Tuesday after soft US manufacturing data highlighted the potential risks from a looming US budget crisis.
Falls in Asian currencies were limited, however, with some market players saying they were likely to be supported in the near term, helped by the US Federal Reserve's monetary stimulus and as investor concerns about the euro zone's debt crisis have ebbed recently.
"The image that I have is that Asian currencies will rise at a gradual pace," said a trader for a Japanese bank in Singapore.
The Institute for Supply Management said on Monday that its index of US factory activity fell to 49.5 in November, the weakest since July 2009, as companies worried about whether lawmakers in Washington could reach a budget deal in time to avert a crisis that many fear could lead to a recession.
Although the US data weighed on Asian currencies, there was also some buying by market players looking ahead to next year, said Saktiandi Supaat, head of FX research for Maybank in Singapore.
"We are seeing typical December dollar-selling from banks positioning for 2013," he said, adding that such players were going short the dollar against Asian currencies.
Emerging Asian currencies have found support after Greece's international lenders clinched an agreement last week on reducing its debt, opening the way for Athens to get urgently needed loans.
A near-term focal point remains the fate of negotiations in Washington to avoid the so-called US fiscal cliff of tax hikes and spending cuts due to come into effect in early 2013.
Many investors seem to think that the issue will be resolved before the year-end, and such optimism has helped lend support to Asian currencies recently, said Craig Chan, head of FX strategy, Asia ex-Japan for Nomura in Singapore.
"I think the market is, going to year-end, broadly of the view that we will see some resolution on the fiscal cliff side," Chan said. "It's probably close to like 70 percent that think we'll get some sort of resolution."
If the US economy were to fall off the year-end fiscal cliff even briefly, say for a week or two at the start of 2013, Asian currencies are likely to suffer, Chan said.
"If you're long Asia into that, it's not going to be very fun... It's going to be very painful," he added.
PHILIPPINE PESO
One Asian currency that is likely to strengthen in 2013 is the Philippine peso, said Chan, adding that the peso is likely to remain supported by remittances from overseas workers.
"It's now running around $1.8 billion US dollars per month," Chan said, adding that such remittances tend to be non-cyclical, and are relatively unaffected even during economic downturns.
Analysts at Nomura see the peso at 39.2 to the dollar at the end of 2013. Compared to the current spot rate of 40.905 , that would be a gain of more than 4 percent for the peso.
"That's definitely one currency which I think will perform relatively consistently throughout the year," Chan said, referring to the peso's outlook in 2013.
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