SINGAPORE: The Taiwan dollar and the Indian rupee gained on Thursday helped by inflows, but the outlook for emerging Asian currencies remained weak on sustained worries about the euro zone's sovereign funding problems and a slowing global growth.
The Thai baht underperformed its Asian peers as offshore sold, while most of the regional units were little changed before a Spanish bond auction and the European Central Bank's policy meeting later in the day.
China's inflation eased to the lowest level in 15 months, giving the government more room to tilt policy towards supporting growth, but investors are likely to keep an eye on a sluggish global economy and its impact on emerging Asia, analysts said.
"Market has not fully grasped the extent of slowdown in region's export performance, especially intra-regional shipments. There is more room for Asia-ex Japan currencies to fall in coming months," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.
Some emerging Asian currencies have risen against the dollar this month on inflows, but investors stayed reluctant to bring massive money to the region, given persistent worries about the euro zone's debt crisis, which is also dragging down the global economy.
Comments from Fitch about the risk of the euro's collapse and bankers expressing a grim view over the Greek bailout on Wednesday increased caution about the course of the debt problems again.
Spain on Thursday plans to sell up to 5 billion euros, just hours before the European Central Bank's policy decision, while Italy on Friday will offer up to 4.75 billion euros of five-year bonds, which will test markets' confidence over the euro zone.
Some traders say downside in emerging Asian currencies is limited, given the inflows and as weak results of the auction have been reflected in the markets to some degree.
"Unless the result is super bad, dollar/Asia will remain heavy. Asia is where inflows are heading to. The flow is small, but consistent," said a senior dealer at an Asian bank in Kuala Lumpur.
TAIWAN DOLLAR
US dollar/Taiwan dollar hit its lowest in more than two months on stock inflows.
But the pair recovered some of its earlier loss as local interbank speculators covered short positions, while the central bank was also spotted buying for intervention, dealers said. Importers also joined the bids.
Moreover, the size of stock inflows has reduced as investors held back purchases ahead of presidential elections on Saturday.
RUPEE
Dollar/rupee fell on inflows into local bonds, as well as selling from funds and exporters, especially after strong factory data.
Production at factories, mines and utilities grew 5.9 percent from a year earlier in November, the fastest clip since June, recovering from a contraction in the previous month and well above the forecast of 2.2 percent growth in a Reuters poll.
The data provided some optimism for the battered economy and gave the central bank room to hold off an easing monetary policy.
WON
Dollar/won was barely changed as supplies from exporters and some offshore funds offset importers demand.
"Local sentiment still favoured long positions, but market forces did not help much. Dollar/won will eventually fall, I think," said a senior foreign bank dealer.
Meanwhile, Swedish bank SEB advised selling rupee/won as it views the recent appreciation in the Indian currency as temporary and expects the won to strengthen more.
South Korea is likely to maintain a current account surplus, but India's current account deficit may persist over the next six months, SEB said. Portfolio inflows to South Korean stock markets will accelerate over the next few months, it added.
"We recommend sell INR/KRW at 22.53 with a take profit target of 21.2 and stop loss at 23.20. The fundamental, political, and technical outlook is negative for INRKRW," SEB said in a note.
Rupee/won edged down to 22.3574.
BAHT
Offshore funds and Thai importers bought dollar/baht , but some local interbank speculators looked to sell the pair, saying market players appeared to hold long positions to clear.
A local bank trader in Bangkok said he'd like to start building up short positions around the session's high of 31.86.
The baht has lost 0.8 percent against the dollar so far this year, becoming the second-worst performing Asian currency after the Indonesian rupiah, according to Thomson Reuters' data.
RUPIAH
Indonesian companies and foreign funds bought dollar/rupiah , while the central bank sold the pair below 9,180, to cap its rises, dealers said.
Currency investors largely ignored Bank Indonesia's decision to keep its key interest rate at 6.00 percent as expected.
Meanwhile, Westpac said dollar/rupiah has room to fall, given foreign investors demand for the Indonesian stocks and foreign holdings of the country's bonds have been steady since late 2011.
Westpac said in a note it is short one-month dollar/rupiah non-deliverable forwards (NDFs) from 9,215.
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