Asian currencies edged lower on Tuesday, with the South Korean won sliding to its lowest level in a month and the Indian rupee hitting a record low, as the eurozone's debt crisis and dollar funding strains left investors with little appetite for riskier assets.
The won fell to as low as 1,150.9 to the dollar at one point, while the rupee skidded to a record low of 52.73. Market players said emerging Asian currencies were likely to remain vulnerable in the near term as the European crisis deepens. It may take some time for Asian currencies to stabilise, the trader said, especially given recent signs of rising dollar funding costs, a situation that may not settle down at least until year-end funding needs are taken care of, he said. In a sign of such dollar funding strains, the one-year euro/dollar cross currency basis swap widened to a bid rate of minus 94.8 basis points at one point on Tuesday.
That implies that the cost of borrowing dollars in exchange for the euro as collateral using basis swaps rose to their highest level since the days of the global financial crisis, in late 2008. While Asian assets face a downdraft from growing risk aversion, one encouraging sign is that demand for Asian bonds has proved resilient, said Nick Verdi, Asian FX strategist for Barclays Capital in Singapore.
Underscoring a broad drop in Asian currencies on Tuesday, the Thai baht and the Malaysian ringgit both touched their lowest levels in about seven weeks. The rupiah last stood at 9,050 to the dollar, dipping about 0.3 percent. It had slipped to as low as 9,070 the previous day, nearing a trough of 9,080 hit in late September. A trader for a European bank in Jakarta said the rupiah remained under pressure on Tuesday in the wake of its slide in the non-deliverable forwards market the previous day.