Won, ringgit up on Fed hope; caution remains on Asian FX

SINGAPORE: The South Korean won and the Malaysian ringgit rose on Monday as interbank speculators added positions in most emerging Asian currencies amid a weak dollar after Federal Reserve Chairman Ben Bernanke hinted of possible new measures to aid the ailing US economy.

China's yuan revisited its trading peak with the Chinese central bank fixing the currency's mid-point at a record high and the euro extended gains to hit a two-month high, providing more support to emerging Asian currencies.

"Post-Jackson Hole, I don't see any reason why one wouldn't look for the USD to revert to its fundamental weakening trend," said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong.

"The Fed is pushing the limits of what monetary policy can achieve already. We can still achieve strength in Asia ex-Japan in currencies that are vulnerable to capital flows."

On Friday, Bernanke said the Fed would consider what more it could do to boost job markets, although he stopped short of detailing any specific action to boost the US economy.

The comments soothed investors, prompting them to add positions in battered riskier assets including emerging Asian currencies.

Before the central bankers' conference in Jackson Hole, Wyoming, investors slashed long positions in the regional units, halving bets on the Korean won and cutting positions in the Singapore dollar by almost as much, a Reuters poll showed.

Despite Monday's rebound, it is premature to feel relief after Bernanke's remarks, given a slackening US economy and persistent worries about the euro zone's debt crisis, analysts and dealers said.

Reflecting these views, the Singapore dollar suffered from US dollar-short covering and the won gave up some gains ahead of technical resistances.

"Basically we can see the case for further Asian currency strength but I wouldn't be advising clients to buy Asian currencies at current levels," said Westpac currency strategist Jonathan Cavenagh in Singapore.

"The focus on Europe can intensify. The US data is not looking great so we see scope for that to weigh on risk appetite and boost USD/Asia at some stage this week."

Less-than-buoyant confidence in emerging Asian currencies may prompt investors to sell them against the euro, some said.

"A fresh trend might be here if DXY closes the day below 73.45 and EUR above 1.4515. If so, EUR should outperform AXJ since many traders have the short EUR/AXJ trade on," said Kenneth Kan, head of emerging markets forex trading at Credit Agricole Corporate and Investment Bank in Singapore.

The dollar index fell 0.30 percent to 73.593, while the euro hovered around 1.4530 per dollar.

WON

The won rose as interbank speculators reduced dollar positions and on offshore players' demand.

But the South Korean currency found resistance around 1,071 per dollar and 1,072.

It has the 50 percent Fibonacci retracement of its depreciation earlier this month at 1,072.5. Its 60-day moving average also stands at 1,071.0.

"I covered short positions although the won looks to have a little room to rise more. If it does not strengthen more tonight in New York, no one will buy it," said a foreign bank dealer in Seoul.

But another senior dealer said: "The won has not found a peak yet as we may see exporters' end-month demand tomorrow and the day after tomorrow."

Some players still appear to hold dollar positions on worries about the US and the euro zone, he added.

RINGGIT

The ringgit hovered around the 61.8 percent retracement of its weakness between late July and early August in subdued trades before a holiday.

If the retracement of 2.9759 per dollar is broken, the next level is 2.9591, the 76.4 percent retracement line.

Malaysian financial markets will be closed from Tuesday through Thursday for holidays marking the end of the Islamic fasting month.

SINGAPORE DOLLAR

The Singapore dollar eased, bucking the strengthening seen on Monday in Asian peers, as leveraged accounts and interbank speculators covered US dollar short positions before a holiday.

Some suspect the central bank of buying greenbacks, while other played down that possibility.

But the Singapore dollar has support around 1.2100 versus the US dollar, around the 38.2 percent retracement of its appreciation earlier this month.

The city-state's financial markets will be closed on Tuesday for the Hari Raya Puasa holiday.

Copyright Reuters, 2011