Real money funds sell ringgit, baht before German vote

SINGAPORE: Offshore funds reduced exposure to emerging Asian currencies on Thursday ahead of a key German vote on a euro zone rescue scheme, with importers' demand for dollars at the end of the quarter adding to the downward pressure.

Regional currencies found some relief as the euro rebounded to above 1.36 per dollar and riskier assets gained on short-covering amid hopes Germany's parliament will approve new powers for the 440 billion euro ($600 billion) rescue fund.

Still, investors were reluctant to buy emerging Asian currencies too aggressively, with some real money funds selling the units on rallies.

"I still prefer long dollar/Asia. The euro continues to fail to extend gains. So, I don't want to short dollar/Asia here," said a senior foreign bank dealer in Seoul.

Scepticism over the European Union's ability to resolve the sovereign debt crisis has prompted investors to dump riskier assets including emerging currencies, not only in Asia but also in Latin America. Even gold has tumbled, with many investors rushing to the relative safety of the US dollar.

Emerging Asian currencies have been hit 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.

But some investors are looking to buy the regional units on dips on views that they will stay in a range rather than weakening further, citing Asian authorities' dollar-selling interventions as they look to shore up their currencies.

On Thursday, central banks of Indonesia, Malaysia and Thailand were spotted selling dollars, while there was a talk of South Korea supplying dollars.

WON

The won fell slightly on importers' dollar demand for end-quarter and end-month settlements, although it recovered most of earlier losses on exporters' deals.

Some leveraged accounts and interbank speculators reduced dollar positions on a rebound in the euro and amid talk that Seoul's foreign exchange authorities were spotted selling dollars around 1,185 per dollar among some dealers.

The South Korean currency ended local trade down 0.2 percent at 1,173.5, after weakening to as soft as 1,185.1.

On the economic front, South Korea reported heavy capital outflows in August on foreign investors' massive stock sales.

But the country saw large foreign bond inflows so far this month than last month, a regulatory source said, easing worries about massive bond outflows from the country.

RINGGIT

The ringgit gapped weaker against the dollar and stayed under pressure from real money funds and model accounts, while the Malaysian central bank was spotted selling dollars.

The central bank was seen capping 3.1890 per dollar, dealers said.

Interbank speculators joined selling dollars to take profit from the recent dollar's gains against the ringgit.

PHILIPPINE PESO

The Philippine peso slid against the dollar on fixing-related selling and amid worries about the euro zone's debt crisis before the German vote.

Real money funds also continued to sell the peso.

But some dealers looked for chances to buy the Philippine unit on rallies, adding the market is seen staying in a range.

"The market is going into consolidation mode first before it (dollar/peso) moves lower again as the seasonal remittances come in," said a European bank dealer in Manila, adding he would buy the peso on dips.

Real money accounts and Japanese names sold the Thai baht . Importers' end-month demand also put pressure on the Thai currency.

Agent banks of the Thai central bank sold dollars from 31.20 per dollar, dealers said, but dollar demand stayed strong.

"THB could come under pressure from the equities' performance. But we will see strong support around 31.30," said a Bangkok-based dealer.

RUPIAH

The rupiah weakened with onshore banks seen bidding for dollars at 9,000 per dollar, dealers said.

The Indonesian central bank was spotted selling small amount of dollars through brokers at 8,930 and 8,925, but players stayed interested in buying the greenback.

On Wednesday, Indonesia's government made a rare plea to state-owned insurers and banks not to sell government bonds to stabilise volatile markets in the face of foreign selling.

SINGAPORE DOLLAR

The Singapore dollar started softer and weakened past 1.30 per the US dollar earlier.

But the city-state's currency found relief as leveraged names and short-term speculators bought it from that level. It also turned stronger on the euro's rebound.

Copyright Reuters, 2011