Short-covers lift Asia FX, exporters support won

The South Korean won found more support from local exporters' demand and the Taiwan dollar advanced on stock inflows.

Last week, most emerging Asian currencies suffered losses as short-term investors cut their bets on riskier assets with some building dollar-long positions ahead of Sunday's European Union summit.

At the meeting, European leaders neared an agreement on bank recapitalisation and on how to use the rescue fund to prevent bond market contagion, although difference remain over the size of losses private holders of Greek government debts will have to accept. Final decisions were deferred until another summit on Wednesday.

The progress lifted riskier assets including Asian stocks and other emerging currencies such as Latin American units.

"Most would rather build positions for a better-than-expected EU summit this Wednesday," said a European bank dealer in Singapore.

"I would probably sell small amounts of dollar/Asia and bigger bets before the November G20 meeting," the dealer added, referring to a summit among the Group of 20 leading economies on Nov. 3-4 in Cannes.

The won rose as offshore funds and onshore speculators cut dollar-long positions while exporters also bought the South Korean currency.

Players had carried over dollar-long positions that they built up on Friday when a major US hedge fund covered short positions, dealers said.

"The fund appeared to turn to long (on Friday) and may have to sell again, although it would not come around these levels. So, I think we may see more falls (in dollar/won)," said a senior foreign bank dealer in Seoul.

As the Taiwan dollar gained on stock inflows, Taipei's central bank was spotted buying and selling the local dollar, dealers said.

US dollar/Taiwan dollar positions were seen as neutral and investors stayed reluctant to make big bets before the EU summit on Wednesday.

That may prompt local importers to look for chances to buy US dollar on dips, some dealers said.

Copyright Reuters, 2011
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