SINGAPORE: The South Korean won hit a 14-month high to the dollar on Tuesday supported by comments the country sees no need for fresh steps to curb inflows, leading gains among emerging Asian currencies hopeful about a compromise in the US budget crisis.
South Korea's Vice Finance Minister Shin Je-yoon said the country does not believe current market conditions demand new regulations to reduce the risks from rapid foreign capital inflows.
The comment prompted offshore funds to chase the South Korean currency and stop-loss dollar selling.
The won's appreciation drove other emerging Asian currencies such as the Taiwan dollar. Moody's Investors Service's cut to France's rating put pressure on the euro, leading to some regional currencies edging higher against the euro.
Regional stocks also gained on views that US lawmakers will reach a deal to avoid $600 billion in tax increases and spending cuts starting in January -- the "fiscal cliff" that threatens to send the US economy, Asia's major exports market, back into recession.
"Asian central banks will try to intervene, but volatility is low and if their currency gain is a broad based move, intervention will be lighter," said BNP Paribas currency strategist Thio Chin Loo in Singapore.
Thio expected emerging Asian currencies to rise further and said she preferred the won, the Chinese yuan and the Taiwan dollar.
Asian foreign exchange authorities, including central banks of Singapore, the Philippines and Taiwan, have been spotted buying US dollars to stem appreciation in their currencies as the global economy has not secured strong growth momentum yet.
Some short-term investors had bearish bets on emerging Asian currencies due to such intervention and with worries about the US budget deal and European debt issues.
But those investors had to cover short positions in regional units when the authorities did not intervene as much as they had expected and on a recovery in risk sentiment.
WON
The won hit 1,081.0 per dollar, its strongest since Sept. 9, 2011 after the vice finance minister's remarks on inflows.
Technically, the South Korean currency is seen heading to 1,078, around the bottom of the downtrend channel starting from late August and its weakest on September 9 last year.
The country's short-term external debt dipped during the third quarter with its ratio to foreign reserves dropping to the lowest in six and a half years, central bank data showed.
"As Korea has successfully reduced its FX funding vulnerability, the implementation of further macro-prudential measures seems unlikely in the near term," said Young Sun Kwon, economist at Nomura, in a note.
But the won's strength is seen slow as the foreign exchange authorities are likely to stem its strength, dealers said. Despite the vice minister's remark, the authorities were spotted buying dollars, they added.
That came as the won hit a 15-month high to the yen, eroding South Korean exporters' price competitiveness against Japanese peers.
The South Korean currency touched 13.2876 to the yen, its firmest since Aug. 4 2011 as Shinzo Abe, the leader of Japan's opposition Liberal Democratic Party which has a commanding lead in opinion polls ahead of the election on Dec. 16, urged the Bank of Japan to pursue "unlimited" easing.
"I don't think the won will breach 1,180 easily as the authorities will keep intervening," said a senior foreign bank dealer in Seoul.
TAIWAN DOLLAR
The Taiwan dollar tracked the won's strength and domestic exporters bought the island's unit for settlements.
It also found support from some inflows from foreign financial institutions.
But investors were wary of potential intervention by the central bank to prevent the Taiwan dollar from strengthening past 29.000 to the US currency.
RINGGIT
The ringgit strengthened past 3.0572 per dollar, the 38.2 percent Fibonacci retracement of its weakness since Oct. 18, on demand from interbank speculators in slow trading.
Still, domestic investors and leveraged funds took profits on sustained worries about the US fiscal problems.
The Malaysian currency also has a technical resistance at 3.0532, the kijun line on the daily Ichimoku chart. The ringgit has been staying weaker than the line since early November.
"I will short the dollar intraday, but I will not hold the positions. A lot of things would happen including the EU news and US fiscal cliff news. I will wait for the right conditions," said a Malaysian bank dealer in Kuala Lumpur.
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