Dollar rises vs Asian currencies on short-covering

SINGAPORE: The dollar rose broadly against Asian currencies on Tuesday as weakness in Asian equities and jitters over the euro zone's debt crisis dampened risk appetite and helped spur short-covering in the dollar.

The South Korean won led the drop in Asian currencies, falling roughly 0.5 percent and dropping for a third straight session as overseas investors booked profits in South Korean equities.

Asian currencies have retreated this week on renewed concerns over the euro zone's sovereign debt crisis and after weak US jobs data last Friday stirred worries about the outlook for the US economy and knock-on effects on Asia.

"If you see another leg lower in Asian equities, that should exert downside pressures on the currencies as well," said Charlie Lay, Asian currency analyst for Commerzbank in Singapore.

"Sort of offsetting that should be QE3 talk out of the US, which tends to be dollar negative. So there are these two opposing forces at work now," Lay said.

Traders said non-deliverable forwards (NDFs) suggest that investors are not expecting a sharp sell-off in Asian currencies in coming months.

In addition, a Singapore-based options trader said activity in the options market has been subdued, with little sign that investors were looking for Asian currencies to break out of their recent ranges.

Volumes in Asian currency options are "actually on a slide" since mid-August and "haven't picked up yet," the trader said.

In terms of flows on Tuesday, a trader for a major Japanese bank in Singapore cited some dollar-buying against Asian currencies by hedge funds.

RUPIAH

The dollar rose to as high as 8,572 to the rupiah, edging close to a two-month high of 8,585 hit in late August.

A dealer for a European bank in Jakarta said the rupiah was pressured by fund repatriation by overseas investors related to maturing SBI, or short-term debt issued by Indonesia's central bank.

The dealer added, however, that overseas investors were also spotted buying long-term Indonesian debt, and other traders said the rupiah's retreat was in line with the weak tone of emerging Asian currencies in general.

SINGAPORE DOLLAR

US dollar selling against the Singapore dollar from speculative accounts and leveraged names continued to cap rallies. Hedge funds and speculators are seen as still keen to sell the dollar into any rallies, with resistance at 1.2100 likely to remain intact for now.

Possible short-term resistance for the dollar also lies roughly in the 1.2110 to 1.2120 area. A 50 percent retracement of the dollar's drop during mid August to late August lies at 1.2108. In addition, a couple of intraday highs hit in late August come in at 1.2116 and 1.2120.

Higher up, the dollar's 55-day moving average and a downward trendline drawn off peaks hit in mid-March, late June and early August both now sit right around 1.2150.

WON

The dollar rose to as high as 1075.5 against the won, right above its 100-day moving average. Possible resistance include 1078.4, a 50 percent retracement of the dollar's drop from early August to early September, and 1079.3, an intraday high hit on August 29.

Copyright Reuters, 2011