Won, Singapore dollar turn lower; stocks weigh on Asian FX

SINGAPORE: The South Korean won and the Singapore dollar eased on Wednesday as interbank speculators and custodian banks reduced exposure to emerging Asian currencies, with regional stocks turning weaker on persistent worries about the global economy and the euro zone's debt crisis.

Emerging Asian currencies had firmed earlier in the day as stocks rose on some hopes for further easing by the Federal Reserve to boost the ailing US economy.

But regional units soon gave up their gains as Asian shares fell back into the red, indicating investors remained reluctant to buy riskier assets after heavy selling in recent weeks and ahead of a speech by Fed Chairman Ben Bernanke on Friday.

"AXJ currencies remain under pressure to some degree given persistent equity outflows. Bond-market inflows are offsetting this to some degree, but currencies are also sensitive to how equity markets are pricing in growth expectations," said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore.

The cost of borrowing dollars in Asia stayed elevated with a shrinking pool of liquidity indicating that costs will only rise further in coming days.

Earlier this week, some interbank speculators bought battered emerging Asian currencies on dips, encouraged by China's PMI data on Tuesday which showed factory activity was not slowly as sharply as some market watchers had feared.

Some traders think Bernanke may hint at further policy easing in his speech, but most economists doubt he will make any major announcements.

Strong suggestions of a third round of quantitative easing would likely hobble the dollar further and boost the appeal of emerging Asian currencies.

"Currencies have been fairly restrained in pricing in further easing thus far, but if he does not give such a signal we may see USD strength on the back of risk-asset weakness," said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong.

The market has the biggest long positions in the Chinese yuan and the Singapore dollar, according to a straw poll of dealers and analysts.

WON

The won shed 0.4 percent as investors added dollar-long positions as local stocks fell.

Earlier, the South Korean currency strengthened to as firm as 1,075.0 per dollar, but failed to keep the gain as Seoul shares slid.

"Still, many players prefer long (dollar) positions on weaker stocks and concerns. The won will keep following shares," said a foreign bank dealer in Seoul.

SINGAPORE DOLLAR

The Singapore dollar opened strongly, but turned weaker as interbank speculators covered US dollar-short positions.

Investors are also wary of possible intervention by the central bank to cap the currency's strength, especially around 1.2030 per US dollar, dealers said.

Still, some looked for chances to buy the Singapore dollar on dips, especially when it weakened past 1.2050, dealers added.

PESO

Leveraged funds and fast money accounts covered dollar-short positions, putting pressure on the Philippine peso.

Interbank speculators also joined in the short-covering.

Earlier, the peso strengthened to as firm as 42.26 per dollar, slightly weaker than the 61.8 percent Fibonacci retracement of its depreciation earlier this month.

BAHT

The baht eased as importers bought dollars for month-end demand, while expectations for a central bank rate hike later in the day were fully priced into the Thai currency, dealers said.

The central bank raised rates 25 basis points to 3.5 percent in a 5-2 vote. It said it was closely watching global uncertainties, but added that policies of the new government could add to inflationary pressures, leaving the door open to further rate increases.

Copyright Reuters, 2011