Won up bond inflows, EU hopes lift Asia

SINGAPORE: Asian emerging currencies gained on Tuesday amid hopes policymakers will find a solution to avoid a default by Greece, while purchases by a foreign central bank to buy South Korean bonds helped the won strengthen.

These currencies have been choppy in recent times, gaining sharply earlier this year as investors chased their stronger fundamentals compared with their western peers, only to dump them when euro zone debt fears gained momentum.

Their outlook remains uncertain amid Greece debt worries, especially after Fitch Ratings said it would regard a voluntary rollover of the country's sovereign bond maturities as a default and would cut the credit rating appropriately.

"Before the money is delivered to Greece around end-June or early July, trading in Asian markets is likely to be volatile," said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong.

"Sentiment could easily turn sour again should there be any negative news from Europe, especially when the concern over the growth outlook for Asia itself lingers with recent soft prints of data."

Fitch's comments came ahead of a confidence vote on the government in the Greek parliament later in the day, a barometer to provide clue on another vote on the austerity steps by June 28.

"Markets are still nervous at the moment, but they seem to be gradually taking a more positive view. We are looking for more of a relief rally (in emerging Asian currencies) heading into the end of the month," said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore.

WON

The won outperformed its Asian peers as dealers cited bond inflows from an Asian central bank and short-term speculators sold dollars to stop losses.

Dealers in Seoul estimated the central bank sold about $600 million in dollar/won during the session after unloading similar amount on Monday.

The central bank is seen having completed buying the won, dealers said.

"The offers (of dollars) were absorbed easily yesterday on a weaker euro and softer stocks. But today, the euro and stocks rebounded, making the supplies more powerful, breaking the 1,080 (per dollar), the level see as a bottom of the recent range," said a local bank dealer in Seoul.

RUPIAH

The rupiah rose, but found resistance at a 55-day moving average line of 8,580 per dollar on corporate demand and bond outflows.

Speculators also covered short-positions, dealers say.

"Some banks now prefer liquid on dollar," said a Japanese bank dealer in Jakarta, citing uncertainty over Greece and Federal Reserve's policy.

The dealer expect smaller inflows for a government bond auction later in the day as the yield of bonds are already low.

Indonesia's finance ministry aims to raise 7 trillion rupiah($819 million) in a debt auction.

The Indonesian currency has room to weaken further, probably to 8,630, the low of Apr 27, if the pair stay weaker than the 55-day moving average.

The rupiah is the second-best performer among emerging Asian currencies with a 4.8 percent gain against the dollar on the country's inflation fighting with a firm currency.

RINGGIT

The ringgit extended gains, tracking the euro' s rebounds to above 1.4350 per dollar.

Copyright Reuters, 2011