SINGAPORE: The South Korean won hit a near three-year high on Friday and the Indonesian rupiah crossed a technical resistance line, leading gains in their Asian peers, helped by stock and bond inflows amid emerging expectations that China may be less aggressive in tightening.
Worries about a global economic slowdown and a Greek default, which put pressure on emerging Asian currencies in the second quarter, eased supported by encouraging US data and as Greece's parliament voted for austerity measures needed to avoid default. The euro also extended gains above $1.45.
"AXJ currencies are being supported by three factors at the moment: broad USD weakness, the belief that AXJ authorities are prepared to tolerate more currency strength to deal with inflation and finally new allocations at the start of the quarter," said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore.
The inflows are expected to brighten the outlook for emerging Asian currencies again, but investors still remain cautious in short term, citing uncertainty over the global economy, analysts said.
As emerging currencies are set to resume rallies despite a slowing global economy, policymakers may not just sit in when their currencies are biting export competitiveness, they added.
Earlier, South Korea's foreign exchange authorities and the Philippine central bank were spotted buying dollar, dealers said.
"I don't get the sense that we are about to see a wave of fresh inflows. Uncertainty over the global outlook is still high and we prepare relative value trades at this stage, particularly given we are starting to see more intervention from Asian central banks, etc," said Westpac currency strategist Jonathan Cavenagh in Singapore.
Sagging export demand cooled Asian manufacturing activity in June, reinforcing concerns that a slowdown in the United States and Europe was sapping world economic growth.
The concerns, along with worries about the euro zone's debt crisis, forced emerging Asian currencies to slow down their gains in the second quarter.
WON
The won hit a near three-year high against the dollar on demand linked to foreign investors' stock purchases and exporters' demand for settlements.
Some players had to place stop-loss dollar orders.
The South Korean currency gave up most of gains as the foreign exchange authorities were spotted buying dollars to slow down its strength, dealers said.
Still, the authorities are unlikely to take aggressive steps to curb the won's strength, given the country's focus on stabilising prices.
"The 1,160 level is defended on the authorities, but I don't think they will strongly defend downside. So, market will sell dollar/won on any rallies," said a local bank dealer in Seoul.
South Korean consumer inflation in June picked up more than expected, earlier data showed.
Late last month, the authorities were spotted selling dollars, according to dealers.
RUPIAH
The rupiah strengthened past a 55-day moving average for the first time in near two weeks on bond inflows, especially as Indonesia aims to sell 7 trillion rupiah ($812 million) of bonds next week.
"I expect this (dollar/rupiah) will head to 8,500 level again and I still believe this psychological level will be broken near term," said a Japanese bank dealer in Jakarta.
"After the Greece issue, market is now focusing on US debt ceiling, but I believe this US debt issue will not lead to 'default' issue. Market risk appetite to hunt the high yield currency will continue."
PHILIPPINE PESO
The Philippine peso also strengthened past a 55-day moving average, the first time in three weeks, and neared to a 50 percent Fibonacci retracement level of its weakness between May and June.
The peso strengthened to as firm as 43.160 per dollar in the afternoon, a notch weaker than the retracement level around 43.150, easily beating the average of 43.242, which was seen as a resistance in the morning.
But the central bank was spotted buying dollar at 43.200 and 43.170, limiting its further gains.
BAHT
The baht is expected to keep underperforming as the general election on Sunday is unlikely to end political uncertainty and dollar/baht remains above a 200-day moving average, analysts said.
Dollar/baht's positions still appear to be long and risk appetite is reviving, but that does not guarantee a sharp fall in the pair, they added.
Some advised building up long positions in other Asian currencies such as the rupiah and the won against the baht.
"The cascade effects from the election outcome and the aftermath may not have been fully priced in yet," said Saktiandi Supaat, head of FX Research at Maybank in Singapore.
Westpac said, all in all, after the election, even if some compromise is reached between the relevant parties, uncertainty will continue to hang over the political outlook.
"There is obviously scope for these (equity and bond) outflows to continue if Sunday's election leaves the market unsatisfied, which appears a real risk at this stage," it added.
Westpac's Cavenagh recommended long positions in the rupiah/baht, yuan/baht, won/baht and ringgit/baht.
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