Baht jumps on political hopes; stock inflows lift won

SINGAPORE: The Thai baht rose more than 1 percent against the dollar on Monday as Sunday's general election eased worries about the country's political uncertainty, while the South Korean won hit a fresh 34-month high on continuous stock inflows.

Interbank speculators also bought the Malaysian ringgit and the Philippine peso, which strengthened past medium-term technical resistance, while other emerging Asian currencies also gained.

The regional units gave up some of their earlier gains as the euro retreated after S&P said a debt rollover plan may put Greece in a selective default.

Still, emerging Asian currencies are likely to keep enjoying inflows on stronger economic fundamentals, although those inflows may be volatile on any negative news on the euro zone's debt problems, analysts and dealers said.

"I find investor confidence in Asia ex-Japan quite interesting and reflective of a short-term relief factor," said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong, adding he is bullish on the Chinese yuan, the Singapore dollar, the Taiwan dollar and the won.

"Euro zone issues will continue to have an intermittent impact on Asia ex-Japan. The case for Asia ex-Japan support continues, but is becoming a bit more restrained."

Most emerging Asian currencies started the third quarter higher on fresh inflows amid easing fears over a default of Greek debts and signs that the global economy was slowing less than earlier thought.

In the second quarter, emerging Asian currencies appreciated, but at a slower pace than in the previous three months, on worries about the debt-ridden euro member and a slowing global economy.

Those worries, especially on euro zone woes, may put a brake on the upside for emerging Asian currencies, dealers and analysts said.

"It will weigh down emerging Asian currencies over the next few weeks" if credit rating agencies expect a default, said Saktiandi Supaat, head of FX Research at Maybank in Singapore.

BAHT

Interbank speculators entered fresh long baht positions on hopes foreign investors would return following the election. After the campaign began in earnest in May, there was $1.4 billion of outflow of global capital.

Thailand's powerful military accepted a stunning election victory by the party of fugitive former Prime Minister Thaksin Shinawatra, boosting hopes for stability in a country plagued by unrest since his ouster in a coup nearly five years ago.

"I expect USD/THB to fall further following the better risk environment recently... They got a majority. This was the best outcome in terms of political risks," said Kenneth Kan, head of emerging markets forex trading at Credit Agricole Corporate and Investment Bank in Singapore.

The baht strengthened and broke through 30.36, its 50 percent Fibonacci retracement level of its fall between late April and June.

It is seen heading to the 30.10-30.30 range which is a cluster of retracement levels and moving averages on daily charts.

Singapore dollar/baht and the baht/rupiah could correct to 24.40-50 and 290 respectively over the course of the next few trading days.

Thai 5-year sovereign CDS tightened about 10 basis points (bps) from late Friday to 121 bps and were about 30 bps tighter from the 13-month peaks reached heading into the election.

Still, it is premature to conclude that the election will erase all political concerns and spark a chase of Thai assets, analysts said.

"The relief rally in Thai stocks has boosted the THB, but we see the 30.25 level (200-day MA, 61.8 percent retracement of uptrend since late-Apr) as a good entry level for a tactical long USD/THB position. A resurgence in political risk could also forestall further BoT tightening in 2H11, making THB a more attractive funding currency for relative value trades," ING Financial Markets said in a note.

The baht has shed 1 percent against the dollar so far this year and has been the worst performing Asian currency.

WON

The won hit a fresh 34-month high against the dollar, but cut some gains as importers bought dollars amid heightened caution over dollar-buying intervention by foreign exchange authorities

Some market players also booked profits, although the authorities were not seen during the day.

"Even without intervention, it was time to take some profits as there are few reasons to enter fresh short dollar/won positions," said a foreign bank dealer in Seoul.

On Friday, the authorities were spotted buying dollars, dealers say.

Without intervention, dollar/won has room to fall more, probably to a firm support of 1,057, its high on July 2, 2008, days before the pair fell below 1,000 line.

Foreign investors extended their buying spree in Seoul's stock market to a fourth consecutive session.

RINGGIT

The ringgit hit a near one-month high against the dollar as interbank speculators cleared dollar-long positions.

The Malaysian currency strengthened to as firm as 2.9940 per dollar, the strongest since June 6.

On Friday, dollar/ringgit ended trade lower than a 55-day moving average of 3.0152.

Monday's S&P statement on Greece "confused the market, but we trade on the view that all will be OK," said a Kuala Lumpur-based dealer, adding he will look for chances to sell dollar/Asia on rallies.

COPYRIGHT REUTERS, 2011