Extend drop in Asia, won hits 6-month low

SINGAPORE: The dollar rose broadly against emerging Asian currencies on Thursday, with the South Korean won hitting a six-month low on selling by offshore players and stop-loss offers.

The Indonesian rupiah stabilised somewhat after selling off sharply the previous day, when offshore real money investors were selling Indonesian government bonds. The rupiah fell but stayed above a trough hit on Wednesday.

Pressure on emerging Asian currencies persisted overall, with the Malaysian ringgit hitting a nine-month trough and the Philippine peso dipping to its lowest in six months.

"At this point we do not rule out further potential weakness for Asian currencies," said Emmanuel Ng, FX strategist at OCBC in Singapore.

Emerging Asian currencies have slid sharply this week as heightened jitters over the euro zone's sovereign debt crisis and the impact on the European banking sector, stoked risk aversion among investors.

Dollar buying by hedge funds and position unwinding by offshore investors have pummelled Asian currencies, which until recently, had remained relatively stable, stirring talk that they were increasingly being regarded as safe havens by investors.

"This was pretty much the last frontier, in terms of the... risk that was still on the table," said OCBC's Ng.

Hedge funds and offshore players were buying dollar again on Thursday, traders said.

Asian central banks, which spent an estimated $4 billion in dollar-selling intervention on Wednesday, were spotted selling dollars again on Thursday, with traders citing dollar-selling by the central banks of South Korea and Indonesia as well as the Philippines.

Jonathan Cavenagh, foreign exchange strategist for Westpac in Singapore, said dollar/Asia may start to see some consolidation in the near-term, but cautioned against jumping into short dollar/Asia positions at this point.

"The situation in Europe remains far from resolved and global growth is continuing to cool. The medium term outlook for Asian currencies remains upbeat but we suspect better entry levels for short USD/Asia positions will still present themselves over coming weeks," he said in a research note.

INDONESIAN RUPIAH

Dollar/rupiah stabilised somewhat after surging to its highest since late February of around 8,840 in the brokers' market on Wednesday. One trader said Thursday's high in dollar/rupiah was 8,800.

Dollar-buying by offshore players was less active on Thursday than the previous day, traders said, adding that dollar-selling intervention by Indonesia's central bank helped temper the dollar's gains.

There was also talk of dollar-selling by leveraged names, while model funds were cited as dollar buyers.

Long-end Indonesian government bonds regained ground after the previous day's slide, with a dealer for a European bank in Singapore saying yields dropped roughly 15 to 20 basis points on the day .

The bond buying was led by onshore players, although there was some buying from offshore players as well, the dealer said.

KOREAN WON

Dollar selling against the won by onshore players initially weighed on the dollar, but momentum players and custodial names later bought dollar/won on dips.

Offshore players were among those cited as dollar buyers against the won, with traders saying offshore names were also spotted selling South Korean equities.

The dollar extended gains on stop-loss bids, hitting its highest in roughly six months of 1,119.9 , with an option barrier said to be lurking at 1,120.

Dollar-selling intervention by South Korea's central bank helped temper the dollar's gains against the won, traders said.

RINGGIT

Dollar/ringgit hit a fresh nine-month high of 3.1030 . Fast money and model accounts were cited as pushing dollar/ringgit higher. In addition, a Kuala Lumpur-based trader said onshore and offshore players were spotted selling Malaysian government securities and buying dollar/ ringgit.

PHILIPPINE PESO

Dollar/peso hit a six-month high. It was supported by USD short-covering by real money investors, traders said, adding that the Philippine central bank conducted dollar-selling intervention to cap the dollar's rise.

HONG KONG DOLLAR

Hedge fund manager William Ackman, best known for selecting stocks, said he was buying the Hong Kong dollar, noting that it could become his biggest bet ever.

The manager of New York-based Pershing Square Capital Management, said he believes that the Hong Kong Monetary Authority will eventually allow the currency to appreciate dramatically against the US dollar.

Copyright Reuters, 2011