SINGAPORE: The South Korean won suffered its worst day in nearly nine months on Monday as investors kept chopping exposure to emerging Asian currencies and stocks amid mounting jitters about the US and Europe.
Finance ministers of the Group of Seven pledged coordinated actions to stabilise markets in the wake of Standard & Poor's downgrade of US debt, but the words did not really help emerging Asian currencies escape losses as investors dampened regional stocks.
Some Asian policymakers such as South Korea's foreign exchange authorities and the Indonesian central bank were spotted acted to limit falls in their currencies, a move seen as soothing sentiment and fighting inflation, dealers and analysts said.
The interventions to boost Asian currencies provided investors a chance to sell regional units at strong levels. The dealers and analysts expect Asian units to remain weak in the near term.
"This bleeding will take its toll in shaving growth prospects for Emerging Asia. With Asian currencies under pressure to weaken, the next key driver to search for is whether dollar shortages occur in Asia," said Suresh Kumar Ramanathan, regional rates and foreign exchange strategist for CIMB Investment Bank in Kuala Lumpur.
"This will exacerbate the AXJ FX weakness. Bottom line, the squeeze in money markets has yet to come but for now it's at the door step of equities."
Dollar interbank funding costs pushed higher on Monday as the S&P cut in its US credit rating sparked a deep sell-off in Asian stocks, sending banks and market players rushing to secure cash on worries that a broader financial crisis could develop.
Reflecting the worries, some foreign bank dealers said their headquarters ordered them to cut risks, adding that they were increasing dollar positions.
"It's time to ask what to buy as a safe haven," said a Kuala Lumpur-based dealer.
Still, analysts and dealers expect emerging Asian currencies to find relief in the longer term from the downgrade, which will eventually put pressure on the dollar. The region's stronger fundamentals should help, too.
Regional authorities are seen continuing to stem depreciation of their currencies, they added.
Technically, some Asian currencies are getting oversold with the 14-day dollar/won Relative Strength Index up to 67.7, its highest since late May last year and close to a threshold level, 70, that indicates the dollar/won pair is overbought.
"We saw significant inflows into local bond markets. Ten-year government debts rallied broadly, except for Indonesia and Philippines, where CDS spreads are relatively wider," said Andy Ji, Asian currency strategist at Commonwealth Bank of Australia in Singapore.
"There is clearly a safe haven twist here, and it is why the regional currencies didn't depreciate as much as they would in such a significant risk unwind."
Emerging Asian currencies have been enjoying inflows as the region has few fiscal problems and its economic performance has been robust.
WON
The won ended local trade down 1.4 percent against the dollar, the largest daily percentage fall since Nov. 26 last year, as local stocks tumbled and overseas funds sold the currency.
Foreign exchange authorities were spotted selling dollars, especially around the time the local market closed, dealers said. Some dealers said the authorities were also seen around 1,078 per dollar.
"The authorities are unlikely to just wait-and-see as higher FX rates may cause more stock falls," said a foreign bank dealer in Seoul.
Meanwhile, the local currency is seen supported by continuous bond flows, dealers and analysts said.
Foreign investors scooped a net 1.46 trillion won ($1.37 billion) in the country's treasury bond futures.
On Friday, they bought a net 1.93 trillion won in bond futures, more than their net stock sales of 1.75 trillion won for the whole week, according to the Korean stock exchange.
RUPIAH
Indonesia's central bank was spotted buying the rupiah to curb a sharp fall in the local currency after its intervention last week, dealers said.
Bank Indonesia has been seen using a firm rupiah to help fight inflation.
The rupiah slipped to 8,540 to the dollar. Without intervention, the Indonesian currency is seen heading to 8,561 per dollar, the 61.8 percent Fibonacci retracement level of its appreciation since late June, given stock outflows.
If the 61.8 percent level is broken, the next levels are 8,564, the dollar/rupiah's bottom of the daily Ichimoku cloud, and 8,586, the 76.4 percent retracement.
Foreign investors sold a combined net $275 million in Jakarta stocks during the previous three consecutive sessions, according to Reuters data.
That compared with a 14-day moving average of net daily sales of $3.6 million.
PHILIPPINE PESO
The Philippine peso edged down on foreign banks' selling, but its falls were limited by the central bank's intervention caution.
On Friday, the Philippine central bank's deputy governor said it is participating in the foreign exchange market to dampen volatility. Some dealers said the central bank's dollar sales on Friday was seen at 42.70 per dollar.
Copyright Reuters, 2011
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