Ringgit, won down, growth woes may cloud outlook

SINGAPORE: The Malaysian ringgit and the South Korean won led falls in their Asian peers on Thursday as investors reduced exposure to riskier currencies on growing signs of a global economic slowdown with weak China data and the US Federal Reserve's growth forecast cut.

In another sign of pressure on emerging Asian currencies, the euro fell below a support of $1.4300 prior to a European leaders meeting, likely to be dominated by Greece's debt crisis.

Concerns about Greece and a slackening global economy are expected to place some cloud over the outlook of the regional units, although investors remain bullish on them in the medium and longer term, analysts and dealers said.

The Fed on Wednesday cut its forecasts for growth in the world's biggest economy -- a big buyer of products from emerging Asian countries -- while offering no hint of further monetary support.

The factory sector in China, the world's No.2 economy, barely expanded in June even as price pressures eased, a purchasing manager survey showed earlier, reflecting slack global demand.

"The tone of the Fed going forward, which will reflect the economic evolution, should have a greater impact on emerging Asian currencies," said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong.

"It looks like there is no signal for QE3 at this point, so that should be a bit more USD supportive. We are not exactly on the verge of Fed policy normalization of course, but a lack of additional easing will be seen as USD supportive."

So far this year, most emerging Asian currencies, except the Thai baht and the Indian rupee, have made gains despite the Fed's plan to end the second quantitative easing -- so-called QE2. The Asian gains have been boosted by investors seeking assets in countries with stronger economic fundamentals than developed ones have.

The South Korean won was the best performer among them with a 5.4 percent rise against the dollar and the Taiwan dollar followed with a 5.0 percent gain. The baht, the worst performer, has lost 1.1 percent on worries about the country's political situations.

Emerging Asian currencies have given up some gains since May on worries about the Greek debt problems and a slackening global economy, which had prompted some investors to hope the Fed will provide further stimulus.

Even after the end of the QE2, the regional currencies are seen staying on a bullish trend in the medium and longer term with most of them staying stronger than 200-day moving averages against the dollar, a long-term technical indicator.

However, their gains would be smaller than rises so far this year, given reduced appetite for riskier assets, dealers and analysts said.

"If the global economy slows more sharply than expected, risk aversion could stymie Asian currency strength," said Emmanuel Ng, an economist at OCBC Bank in Singapore, adding that their rises are seen limited.

RINGGIT

The ringgit lost 0.3 percent against the dollar and weakened past 3.0290 per dollar, the 50 percent Fibonacci retracement line of its gains between late May and early June.

The Malaysian currency has room to weaken more, if it ends the day weaker than the level, probably to 3.0382, the 61.8 percent retracement.

But exporters bought it on dips for settlements, providing some relief

"If the euro stays above $1.4250, the ringgit will stay in 3.03-3.04," said a Kuala Lumpur-based dealer.

WON

The won slid as investors covered dollar-short positions and on importers' dollar demand.

But the South Korean currency recovered some of its fall on exporters' bids for settlements and as some investors see foreign exchange authorities allowing its gains to stem inflationary pressure.

"Views are emerging that the authorities shifted FX stance to prefer a firmer won," said a senior foreign bank dealer in Seoul.

The authorities were spotted selling dollar when the won weakened past 1,090 per dollar earlier this month, dealers said.

The central bank also surprised financial markets by raising interest rates on June 10.

SINGAPORE DOLLAR

The Singapore dollar turned higher against the US dollar as it found support at around 1.2367, the 38.2 percent retracement level of its falls between May and June.

The city-state's currency has another support level at 1.2381 per US dollar, the 55-day moving average.

"It (US dollar/Singapore dollar) may gain more on a softer euro but I don't think it can break through 1.24 as its range is so tight," said a senior European bank dealer in Singapore.

He said short-term players' positions are seen as neutral while real money players appear to still hold short US dollar/Singapore dollar positions.

Copyright Reuters, 2011