SINGAPORE: The South Korean won hit a near two-month high and the Malaysian ringgit breached a technical resistance on Thursday as real money accounts and leveraged funds bought emerging Asian currencies after Greece moved a step closer to international aid and avoid default.
Greek lawmakers approved a five-year package of austerity measures by a clear margin, which indicating the government should be able to push through a second package of laws on Thursday, carrying out specific budget measures and asset sales.
That would help the debt-ridden euro member get the 12 billion euro ($17.3 billion) of emergency loans from the International Monetary Fund and European Union, which are essential to meet debt payments by mid-July.
"We see EM currencies rallying further in coming months. Our base case is that Greece and the Euro zone will muddle through and that the US avoids a double dip recession. In that case we see further gains for EM currencies," said Christopher Gothard, head of FX for Brown Brothers Harriman in Hong Kong.
Emerging Asian currencies appreciated in the first half of the year, but gains in most of them slowed in the second quarter from the previous three months as investors reduced exposure to risk assets amid the Greek debt crisis and a global economic slowdown.
The ringgit edged up 0.4 percent against the dollar in the second quarter, compared with a 1.8 percent advance in January-March period.
With increasing hopes on an aid to Greece, emerging Asian currencies are expected to gain momentum, dealers and analysts said.
"Now that the worst is over for Greece from an investor's standpoint, I think the coast is clear for a July risk rally," said Kenneth Kan, head of emerging markets forex trading at Credit Agricole Corporate and Investment Bank in Singapore, adding he prefers the Taiwan dollar
Still, some dealers and analysts said it is premature to expect that outcome yet.
"After tonight's voting and into a new month next week, we could see a reversal in sentiment, as investors realize that the sovereign worries in Greece and beyond will not go away for a protracted period of time," said Andy Ji, Asian currency strategist at Commonwealth Bank of Australia in Singapore.
He said he would position for possible pull-backs in commodity-linked and more risk-sensitive currencies, such as the Australian dollar, the new Zealand dollar, the won and the Indian rupee .
WON
The won hit a near two-month high against the dollar as offshore players such as real money accounts chased it and foreign investors kept buying local stocks. Exporters also purchased the local currency.
Importers bought dollars, especially under 1,070 per dollar, but their dollar demand was absorbed by supplies from offshore investors.
Some investors were wary of possible dollar-buying intervention by the foreign exchange authorities to slow down the currency's strength, others downplayed the possibility.
"The government will not actively defend downside as it focuses on prices," said an Asian bank dealer in Singapore.
The government pledged to control price stability, sharply raising its inflation forecast for the whole of this year.
Earlier this month, authorities were spotted selling dollars to cap the won's weakness, according to dealers.
The South Korean currency strengthened to as firm as 1,067.3, the strongest since May 2.
It has room to fall more, probably to the dollar/won's low of 1,064.9 on May 2, but it has a firm support at 1,057, dollar/won's high on July 2, 2008, days before the pair fell below 1,000 line.
"I doubt if dollar/won could breaks through 1,050-1,060 supports. Many local companies set their business plans for this year at 1,050," said Jeong My-young, a currency strategist of Samsung Futures in Seoul.
RINGGIT
The ringgit briefly breached a 55-day moving average as interbank speculators bought it with the euro's rebound to above $1.45.
Continuous expectations of inflows for Bumi Armada's initial public offering next month also supported the Malaysian currency.
The ringgit appreciated as much as 0.7 percent to 3.0115 per dollar, breaking through the average of 3.0155.
"Market sentiment is shifting. If the euro recovers more, we should get prepared for lower USD/Asia," said a Kuala Lumpur-based dealer.
But he also expressed some remaining concerns over uncertainty about the euro zone's debt problems, adding: "USD/Asia will be afraid to go lower."
The ringgit may strengthen further, but it will face resistances around 2.9800-3.0000.
SINGAPORE DOLLAR
The Singapore dollar gained 0.4 percent against the US dollar on demand of leveraged funds and stop-loss sales of the greenback.
The city-state currency may strengthen further, probably to 1.2265, the low of US dollar/Singapore dollar on June 7.
Copyright Reuters, 2011
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