SINGAPORE: The Indian rupee hit a one-year low against the dollar on Thursday as the greenback rose on short-covering, while the South Korean won dipped after a dovish statement from Bank of Korea suggested rates will stay on hold this year.
The dollar rose broadly against emerging Asian currencies, gaining momentum especially after a surprise decline in Australian employment pulled the Aussie lower against the greenback.
The US currency rose to as high as 46.2650 against the rupee at one point, its highest in a year, buoyed by dollar short-covering interest and heavy buying in dollar/rupee forwards.
It last stood at 46.215 against the rupee, up 0.1 percent on the day, having rallied more than 5 percent from a trough hit in late July.
Analysts at Bank of Tokyo-Mitsubishi UFJ's global markets division for the ASEAN region in Singapore, reckon the rupee could fall further to around 48 to the dollar by year-end.
"India's economic environment faces the twin problems of a current account deficit and elevated domestic inflation," the analysts said in a recent research note. "It is hard to expect the Indian rupee to rise for the time being."
Asian currencies have fallen this week on renewed jitters over the euro zone's sovereign debt crisis, and on concerns that their economies may increasingly feel the pinch from a slowdown in developed economies.
Market speculation that the US Federal Reserve may adopt further monetary easing measures as early as this month, has helped lend Asian currencies support, however.
Traders say risk-taking in Asian currencies has been relatively subdued recently, with banks mainly focusing on reducing their positions due to an uncertain market and economic outlook.
"Most trading desks are focusing on profit-and-loss preservation rather than taking any unnecessary huge risk," said a trader for a European bank in Jakarta.
WON
South Korea's central bank left its key rate on hold at 3.25 percent for the third successive month as widely expected. The central bank, however, said inflation is seen easing gradually and added "financial, economic risks" to its factors to watch and the won dipped on its statement.
"Market thinks it's dovish, but I don't," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia (CBA) in Singapore, referring to the central bank's statement.
"While the rate decision reflects BoK's concerns over the external development, the balance of risks hasn't shifted to slower growth decisively, especially given the worsening inflation outlook," Ji said, adding that the central bank will have to raise interest rates later this year.
CBA's forecast is for dollar/won to drop to 1025 in coming months, Ji said.
However, a poll taken after Thursday's policy decision showed market expectations for an interest rate rise this year were fading, with most economists now believing South Korea's central bank will hold off from raising interest rates again this year.
RUPIAH
Indonesia's central bank kept its benchmark policy rate on hold at 6.75 percent as expected, but said it widened the floor of its interbank overnight rate to 150 basis points below its policy rate from 100 basis points below.
The central bank said the widening of the floor was conducted to "push activities in the interbank market amid huge excess liquidity".
The rupiah seemed to take the announcement in stride. While some said it may effectively be an easing measure, others said it seemed like a technical move.
"It's a function probably of the capital inflows coming in and they need to widen it to allow for more flexibility," said Saktiandi Supaat, head of FX research for Maybank in Singapore.
The rupiah had fallen against the dollar ahead of the central bank decision, with traders citing dollar-buying by offshore banks, possibly outflows related to maturing SBI -- short-term bills issued by Indonesia's central bank.
"It's mainly foreign banks buying the dollar," said a dealer for a European bank in Jakarta, adding that while there were some inflows into long-term Indonesian government bonds, such dollar selling was not all that active.
Copyright Reuters, 2011
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