Ringgit, peso down as specs cover dollar short positions

SINGAPORE: The Malaysian ringgit and the Philippine peso slid on Thursday as interbank speculators trimmed exposure to emerging Asian currencies on renewed concerns over debt contagion in Europe and political gridlock in Washington on how to cut the deficit.

But with fears of a looming US debt default or credit rating downgrade continuing to weigh on the dollar, market watchers said the longer-term bullish trend for emerging Asian currencies appeared to be still intact.

Indeed, most regional currencies such as the South Korean won recouped early losses by late afternoon as they remain more attractive than the dollar or the euro, dealers and analysts said.

"Risk aversion has spiked too high for Asia ex-Japan (currencies) to maintain their appreciation against the USD broadly speaking," said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong.

"A resolution in the debt ceiling issue is the key. Playing defensively would be recommended. Avoid MYR and KRW longs, and play a constructive Asian view via SGD," he added.

Emerging Asian currencies have enjoyed inflows amid the region's solid economic growth and policymakers' anti-inflation stance.

India's central bank on Tuesday raised interest rates more than expected and kept up its hawkish tone, providing support to the rupee.

Developing Asian countries do not face fiscal problems, either, unlike Europe or the United States, where politicians have not shown any sings of a deal yet to raise the country's debt ceiling, less than a week before an Aug. 2 deadline.

Worries about the euro zone's debt crisis emerged again in contrasting statements by euro zone politicians to domestic audiences, which have underlined the fragility of last week's deal to rescue Greece.

So far, concerns about a US downgrade have not sparked panic selling in global markets, but a sharp move out of riskier assets could dent emerging currencies, at least in the short term.

"If a certain threshold of risk aversion is reached with regards to a consolidation of the euro zone and the US crisis, people may shift to dollars in place of high risk emerging currencies," said Saktiandi Supaat, head of FX Research at Maybank in Singapore.

In case of a US downgrade and global equity crash, investors should look to currencies such as the Thai baht rather than those of countries which are more heavily export-reliant, he added.

RINGGIT

The ringgit shed 0.4 percent against the dollar on dollar-short covering amid a weaker euro.

On Wednesday, the Malaysian currency hit its strongest since late September 1997 as the central bank was not spotted buying dollars.

The gain caused the 14-day dollar/ringgit Relative Strength Index (RSI) to fall below the 30 threshold, indicating the pair was in oversold territory.

With the Thursday's dollar-short cover, the RSI rebounded to 33.47.

PHILIPPINE PESO

The Philippine peso fell as interbank speculators covered dollar-short positions.

On Wednesday, the peso also hit an over three-year high against the dollar as leveraged names and interbank speculators keep building dollar-short positions.

The Philippine currency may correct further as the 14-day dollar/peso RSI was still below the 30 level, dealers said.

But that would not impair its longer-term upward, they added.

Investors were keeping an eye on the central bank's rate decision later in the day, but it would not have big impact on the peso unless the Bangko Sentral ng Pilipinas (BSP) surprises the market.

WON

The won pared early losses as exporters bought the South Korean currency for end-month settlements.

"Dollar/won should have risen further, but exporters' end-month deals prevented it from rising more," said a local bank dealer in Seoul.

Another dealer reported scant dollar demand from importers, adding to expectations for further won gains.

Copyright Reuters, 2011