Greek caution undermines Asia FX

26 Jun, 2015

Most emerging Asian currencies eased on Thursday as talks to avoid a Greek debt default dragged on without any agreements and caution mounted ahead of a European Union summit later in the day. South Korea's won eased as the country cut economic growth and inflation forecasts for this year. The ringgit slid to near a nine-year low against the US dollar with selling the Malaysian currency against the neighbouring Singapore dollar. The Indonesian rupiah slumped on dollar demand from local importers for month-end payments.
Greek negotiations with creditors stumbled on Wednesday ahead of the next week's deadline to repay 1.6 billion euro ($1.8 billion) to the International Monetary Fund. The EU leaders are set to meet in Brussels later on Thursday. "They may just extend talks without any conclusion. In that case, the dollar will rise further and hurt Asian currencies," said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul.
"Even if we see an agreement, the euro's upside still is seen limited as the economy has not strongly recovered yet there. Emerging Asian economies are also sluggish. So, Asian currencies are likely to stay weak." Such bearish moods came as data showed that the US economy in the first quarter shrank 0.2 percent, much smaller than the previous estimate of a 0.7 percent contraction. The final figure bolstered expectations that the Federal Reserve may raise interest rates later this year, probably as early as September.
The won slid as South Korea downgraded its forecast for this year's economic growth to 3.1 percent from 3.8 percent and said the government will pass a supplementary budget to counter fallout from the ongoing outbreak of Middle East Respiratory Syndrome. The government also slashed its inflation outlook to 0.7 percent for 2015 from the 2.0 percent forecast earlier.
The South Korean currency was also under pressure from dollar demand from importers. The won pared most of earlier losses, tracking the yen's rebound. South Korea also upgraded this year's current account surplus forecast to $94.0 billion from $82.0 billion estimate earlier. The ringgit lost as much as 0.4 percent to 3.7670 per dollar, its weakest since June 8, when the Malaysian currency hit a nine-year low of 3.7680. The currency recovered some earlier losses on caution over possible intervention to support the worst performing Asian currency so far this year. Its peers also pared initial depreciation. Still, traders were looking to sell the ringgit on rebounds amid weak prices of commodities - the country's key export - and concerns over state-fund 1MDB's debt problems. "I prefer to buy USD/MYR around 3.75 on the dollar's strength and domestic sentiment," said a senior Malaysia bank trader in Kuala Lumpur.

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