SINGAPORE: The South Korean won led falls among Asian peers as investors cut risk positions amid a commodity rout and a weaker euro on Thursday with the Malaysian ringgit and the Thai baht weakening past major support levels.
Emerging Asian currencies were hit as investors covered dollar-short positions on worries about potential hedge fund liquidations because of steep commodity drops. Also prompting more covering was a surprisingly sharp decline in Australia's employment.
Investors are expected to further reduce holdings in Asian currencies despite their bullish longer-term outlook that's backed by a strong economices and policymakers' efforts to fight inflation, analysts and dealers said.
‘We are still grappling with the same issue of crowded positioning,’ said Andy Ji, Asian currency strategist and economist at Commonwealth Bank of Australia in Singapore.
‘I understand why some market players are still constructive on Asian currencies, because of the still good fundamentals. However, you need to look at how much of these good fundamentals is priced in.’
Emerging Asian currencies have experienced corrections on profit-taking, tracking falls in commodities and feeling an effect from persistent worries about Greece's debt problems. European Union finance ministers will meet next week to try to resolve Greek issues and ring-fence Portugal.
Weak commodities and skittishness about the euro zone are expected to keep investors away from riskier assets including emerging Asian currencies, analysts said.
‘The risk-off should be prolonged until maybe the early part of next week when the finance ministers' meeting decides on the Greece issue,’ said Saktiandi Supaat, Head of FX Research at Maybank in Singapore. He added Asian currencies may weaken more until then and the key would be the extent of the EU's resolve.
The Euro zone finance ministers are likely to tell Greece it must deliver on agreed fiscal and privatisation targets if it wants new emergency financing next year, a euro zone source said on Tuesday.
WON
Offshore macro funds covered dollar-short positions and foreign investors posted their biggest daily stock sales in more than two months, putting pressure on the won.
South Korean exporters including shipbuilders chased the local currency for settlements, especially around 1,082 per dollar and 1,083.
Despite the demand, the won ended domestic trading around its session low of 1,085.2, indicating it may stay weak as players still hold dollar-short positions to cover.
The central bank is expected to raise interest rates on Friday, but the views have been reflected in financial markets, so the projected rate hike is unlikely to boost the won, dealers and analysts said.
The won may weaken to 1,095, around a low of April 19. If the level is broken, it will head to 1,100, around lows of March 31 and April 1.
‘The won found relief from exporters today, but it would fall eventually with some players already having built up long positions,’ said a US bank dealer in Seoul.
Foreign investors dumped a net 1.01 trillion won ($938.6 million) worth of Seoul shares, their largest daily sales since March 10.
SINGAPORE DOLLAR
The Singapore dollar weakened to as soft as 1.2398 per the US dollar as interbank speculators covered short positions in the greenback. Model funds also sold the city-state currency, dealers said.
Earlier, the city-state's currency found some support as real money accounts bought it on dips and on demand against the Australian dollar.
But as the euro fell below 1.42 versus the US dollar, the Singapore dollar extended falls, with room to soften more, probably to 1.2405-1.2414, lows of May 5 and May 6.
RINGGIT, BAHT
The ringgit and the baht weakened past major support lines on dollar-short covers and are expected to fall more.
The Malaysian currency is seen heading to 3.0140, the 50 percent Fibonacci retracement level of the March-April strengthening trend, as it broke through 3AFP
The baht, which weakened past 30.17, the higher downtrend channel line of dollar/baht, has room to soften, probably to 30.32, the 38.2 percent Fibonnaci retracement level of January-April strengthening trend.
If the level is clearly broken, the next level is 30.51, the 50 percent retracement level.
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