Won, ringgit lead Asia falls as hopes ebb for EU debt solution

Speculators added some exposure to emerging Asian currencies on dips, helping the Singapore dollar rise, but most investors were reluctant to buy regional units as hopes weakened for a fast and comprehensive solution to Europe's sovereign debt problems.

Germany's finance minister on Monday soured hopes for a quick solution on the European sovereign debt issues, denting the recent recovery in risk sentiment. That pushed down stocks, commodities and other emerging currencies such as Brazil's real.

"The EU summit looks like it is headed for major disappointment to the markets," said a European bank dealer in Singapore, referring to the meeting of European leaders on Oct. 23.

"I would like to advocate selling dollar/Asia on rallies still from a medium-term perspective. But I will be squeezed quite frequently. So, I will trade dollar/Asia taking the euro's trading performance into consideration."

Over the last week, emerging Asian currencies had benefited from short-covering in overly sold risky assets amid hopes that European leaders would soon announce a decisive plan to end the euro zone's debt problems, including how to recapitalise its banks.

Adding to worries about the crisis, Moody's warned on Monday it may slap a negative outlook on France's credit rating in the next three months if the country fails to make progress on fiscal and economic reforms.

"My advice is to get neutral in the near term. We took profit on our short USD/SGD yesterday and don't have any positions on. We will stay that way for at least the next few sessions," said Jonathan Cavenagh, foreign exchange strategist for Westpac in Singapore.

Meanwhile, emerging Asian currencies showed muted reaction to Chinese data that showed annual growth in the world's No.2 economy slowed slightly to 9.1 percent in the third quarter, its weakest pace in more than two years

WON

Dollar/won rose on short-covering, while the pair gave up much of early rises on exporters supplies.

Some speculators sold it as the euro recovered some losses.

"Sentiment has shifted to selling on rallies with exporters' deals. The market also looks slightly heavy," said a senior foreign bank dealer in Seoul.

But many players do not want to get caught short dollar/won, given the still weak risk appetite.

"I will not sell USD/KRW here, given sluggish stocks," said an Asian bank dealer in Singapore.

BAHT

Dollar/baht gained as offshore investors bought the pair amid signs of rising bets that the central bank will cut interest rates to offset the economic impact of massive flooding.

The Bank of Thailand is set to meet on Wednesday to decide monetary policy. On Monday, its governor said the central bank is ready to be flexible on policy, depending on economic conditions.

A Bangkok-based dealer expected the central bank to hold rates steady this week, but said dollar/baht will rise further.

"The flood situation would eventually effect THB and we expect USD/THB to rise toward 31.00," the dealer said.

RINGGIT

Dollar/ringgit rose earlier on a surge in non-deliverable forwards (NDFs) overnight.

Rebounds in the euro and the Australian dollar cut gains in the pair, but it rebounded again on risk-off demand.

SINGAPORE

US dollar/Singapore dollar slid as speculators eyed on selling above 1.2700 levels.

The pair came under more pressure as dollar/won cut rises and the euro also recovered some falls.

"Any dip in SGD NEER towards the bottom of the policy band will be good opportunity to enter the trade again," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.

Copyright Reuters, 2011