Peso, won up on funds, exporters, remain sceptical on euro

SINGAPORE: The Philippine peso rose on Wednesday on demand from macro funds and interbank speculators, while exporters helped support the South Korean won, though investors remained reluctant to buy emerging Asian currencies aggressively amid doubt over Europe's efforts to tackle its debt crisis.

Late in Asian market hours, European Commission President Jose Barroso said the region could issue jointly underwritten bonds once there was deeper economic integration among the 17 members.

The comments lent some support to the euro. Still, investors remained sceptical over the region's efforts to solve its festering sovereign debt crisis.

Reflecting the lack of confidence, the Singapore dollar was unable to gain traction on Wednesday, while the Malaysian ringgit and the Thai baht failed to hold on to early gains.

"They might say nice things but it will take a while to work out how to get it (Europen debt levels) down. It's very complicated as you are dealing with many countries," said Kenneth Kan, head of emerging markets forex trading at Credit Agricole Corporate and Investment Bank in Singapore, adding he would sell emerging Asian currencies on rallies.

But Ken also said: "The recent highs in USD/AXJ should cap any USD buying. I like selling USD into the recent highs going into October."

Riskier assets including stocks and even gold fell as investors focused more on the obstacles facing any European debt rescue efforts, mainly opposition in Germany.

On Tuesday, hopes for progress on a major debt deal by European leaders boosted emerging currencies not only in Asia but also in other markets, with the Brazil real and the Mexico's peso firming.

Worries about the euro zone's debt crisis and a slowing global economy has prompted a global flight from riskier assets since late July, with many investors opting for the relative safety of the US dollar.

Emerging Asian currencies have been pressured by dollar-demand in non-deliverable forwards (NDFs) from offshore institutional investors, which in the past few weeks have rushed to hedge against further weakness in regional currencies.

Asian credit spreads have underperformed other emerging markets such as Latin America and Eastern Europe, with the spread between 10-year dollar benchmarks for Philippines and Brazil's having blown out to around 50 basis points (bps) from the 15 bps-20 bps average during the past few months.

A Singapore trader suggested that players with exposure to local bond markets have been hedging losses in those markets where bid/offer spreads have widened.

PHILIPPINE PESO

Macro funds and interbank speculators chased the peso as it caught up to its regional peers. Manila's financial markets were closed due to a typhoon on Tuesday when Asian currencies rallied on demand from US investment banks and offshore funds.

The Philippine currency is seen strengthening further on a technical basis, probably to a 200-day moving average of 43.32 per dollar, dealers said.

"The market is slowly building short positions and would most likely be looking to sell on any rally," said a European bank dealer in Manila.

"These levels would be a good to start building dollar-short positions, the market right now is seeing that the worse may be over for EU for now."

WON

The won ended choppy local trade on a firmer note as exporters such as shipbuilders chased it for end-month settlements.

The South Korean currency started the day firmer, but turned lower as investors added dollar positions on renewed worries about bond outflows after Franklin Templeton sold some of the country's bonds.

The US fund manager sold about $171 million in South Korean bonds earlier this week, although it has not appeared to change its bullish view on the won currency, officials at Seoul's financial authorities said.

But an official said won selling by the fund has not been spotted, indicating Templeton may keep its exposure to the currency.

Exporters took the fall on the news as chances to buy the won on dips, causing investors to clear dollar-long positions.

RINGGIT

The ringgit fell as real money funds and leveraged accounts sold the Malaysian currencies.

Their sales triggered dollar-short squeezes around 3.1600 per dollar, also put pressure on the ringgit.

Copyright Reuters, 2011