SINGAPORE: Most emerging Asian currencies rose on Monday on hopes that China will unleash more stimulus to boost slowing economy growth, but investors were reluctant to make big bets ahead of comments by the US central bank chief later in the week.
The South Korean won also found support, with the country's one-year interest rate swaps (IRS) slightly rebounding and on demand from domestic exporters, while interbank players in Malaysia lifted the ringgit.
Some players bought regional currencies such as the won and the Singapore dollar versus the euro to seek higher yields, dealers said.
The Indonesian rupiah slid, bucking the firmer regional trend, but currency pared early losses after Moody's Investors Service affirmed its credit rating.
Still, investors were cautious ahead of Federal Reserve Chairman Ben Bernanke's testimony to the US Congress on Tuesday and Wednesday, which could hint at more stimulus and weigh on the dollar.
"We hope that he will lay down greater detail on just where the threshold is for QE, or at least hint at a bias towards or against it," said Sacha Tihanyi, senior currency strategist for Scotiabank in Hong Kong, referring to quantitative easing to shore up the US economy, Asia's major export market.
"If he does hint that the threshold is close to being achieved, we certainly see support for Asian FX via broad dollar weakening," he added.
The Fed last month took more efforts to keep long-term interest rates low by announcing it would buy an additional $267 billion in long-term bonds while selling short-term securities in a measure known as Operation Twist.
The US central bank, however, held off from launching a third round of outright bond purchases that would expand its balance sheet, a form of stimulus known as quantitative easing.
A number of central banks around the world have cut interest rates or eased policy in recent weeks to support fragile economic growth.
China's Premier Wen Jiabao said efforts to stabilise the economy are working and the government will beef up steps in the second half to boost policy effectiveness and foresight, the official Xinhua news agency reported on Sunday.
The comments came after China posted its slowest growth in more than three years in the second quarter.
But Bernanke is expected to repeat this week that the Fed will carry out further easing only if necessary, many dealers and analysts said.
"He will save it now for the time when the US economy is sinking," said a senior dealer at a Malaysian bank in Kuala Lumpur.
"If he uses the QE3 now, he will have no ammunition left when (US President Barack) Obama gets re-elected," he added.
SOUTH KOREAN WON
The won rose, with a rebound in one-year IRS and on exporters' demand for settlements.
But it pared earlier gains as some offshore funds such as model accounts sold it and local importers bought dollars for payments, dealers said.
"The won was supported by expectations of China's further easing, but it is expected to stay under pressure from a slowing global economy," said a local bank dealer in Seoul.
One-year Korean IRS rose to 2.9330 percent from Friday's 2.9000, the lowest since October 2010, as some investors saw its recent plunge as excessive.
But many market players doubted if the country's interest rate swaps could extend their rise, given expectations that the central bank will cut rates further. Three-year IRS and five-year IRS fell further.
"It will be very difficult to see a rebound (in swaps) due to KRW rate cut views," said a senior swap broker at a foreign brokerage house in Seoul.
One-year basis spread against one-year cross-currency swap rates narrowed to 130.3 basis points (bps), the lowest since late 2007, indicating a smaller yield for foreign investment in rates.
INDONESIAN RUPIAH
The rupiah weakened on local banks' dollar demand, but found some relief after Moody's said the outlook for the country's sovereign rating remained stable.
The central bank was also spotted buying the rupiah through state-run banks to prevent it from weakening past 9,500 per dollar, dealers said.
The Moody's announcement lifted Indonesian stocks and bonds, while a custodian bank sold dollars, indicating foreign investors bought the country's assets, dealers said.
That also briefly helped the rupiah escape from the session low of 9,485 per dollar to 9,475, but it headed back to the low again on local banks' dollar demand.
A Jakarta-based dealer said Moody's helped improve sentiment on the rupiah, but dollar demand among domestic banks stayed strong.
Indonesian corporates are expected to buy dollars on dips this month before holidays in August, the dealer added.
MALAYSIAN RINGGIT
The ringgit rose slightly in subdued trading as interbank speculators reduced dollar holdings versus the Malaysian currency and on firm stocks in Kuala Lumpur.
Still, local investors sold the ringgit on rallies both against the dollar, while maintaining a bearish stance on the local unit versus the Singapore dollar.
Comments
Comments are closed for this article.