Won, rinngit up as funds cut short-Asia FX bets

SINGAPORE: The Malaysian ringgit and the South Korean won rose on Wednesday, leading overall strength in their Asian pairs, as some offshore funds covered short positions in the battered regional emerging currencies, that have been oversold and finding support around long-term technical levels.

Interbank speculators bought emerging Asian currencies on caution over possible dollar-selling by the regional central banks after the recent intervention to limit their currency falls.

Risk assets such as stocks and Latin American currencies also gained with tentative signs of increased efforts by European leaders to prevent the region's sovereign debt crisis from spreading to a full-blown banking crisis.

Reflecting the cautious optimism, players are looking for chances to cover short positions in emerging Asian currencies more in near term, although they admit sustained risks from the euro zone's problems.

"I will sell dollar/Asia on rallies and buy euro/dollar on dips as long as the euro is above 1.32, until Europe markets open. And then I will watch comments from EU officials," said a senior dealer at an Asian bank in Kuala Lumpur.

On Tuesday, emerging Asian currencies found some relief led by the won and the Singapore dollar, which succeeded not to breach long-term support on intervention.

A few regional central banks also bought the won bonds, industry sources said, supporting the local currency more.

On Wednesday, the won rose as some offshore investors including hedge funds bought the South Korean currency. Exporters' bids for settlements also supported it.

The ringgit also gained on interbank speculators' demand.

The 14-day relative strength index (RSI) of the both dollar/won and dollar/ringgit stayed above the 70 threshold, indicating the pairs are in overbought territory.

The South Korean currency is seen having a strong support around 1,200 per dollar, which the country's foreign exchange authorities were seen protecting.

Still, investors remained wary of outflows from Asia with Indonesian rupiah down.

The rupiah suffered the worst performance during the day so far as investors keep worried about bond outflows with bonds under further selling pressures.

On Tuesday, Indonesian government raised 6 trillion rupiah ($674.3 million) in a debt auction with rising short-term yields from a previous sale.

Emerging Asian currencies have been pressured by persistent dollar-demand in non-deliverable forwards (NDFs) from offshore institutional investors, who in recent weeks have rushed to hedge against further falls in the regional units.

Some funds built up dollar-long positions against them on deepening worries about the euro zone's sovereign crisis and a slowing global economy.

Copyright Reuters, 2011