Published: Wednesday May 9, 2012 MYT 4:29:00 PM
Europe worries hit Asia FX; won, ringgit breach support
SINGAPORE(Reuters): Most emerging Asian currencies fell on Wednesday, with the South Korean won and the Malaysian ringgit briefly breaking through technical support, on worries that austerity moves Europe has taken to deal with its debt crisis could be derailed.
The won came under pressure both from offshore hedge funds buying dollars as well other funds covering short positions in the euro versus the local currency. The ringgit slid as European banks sold it and investors added to long dollar positions.
Wednesday's slides in regional units came as Greece struggled to form a government after the weekend's election, heightening the risk that a hard-won bailout deal could be scrapped. Radical leftist Alexis Tsipras will meet the leaders of Greece's mainstream parties later on Wednesday to try to form a coalition government, an effort seen as doomed after he demanded that pledges made in exchange for an European Union/International Monetary Fund rescue package be torn up. "Concerns over disorderly exit of the country from the euro zone are coming back, triggering uncertainty in global markets," said Dariusz Kowalczyk, Credit Agricole CIB's senior economist and strategist in Hong Kong. "We expect Asia to see a continuation of yesterday's emerging market trend towards weaker currencies and equities, while rates are likely to fall as well." Officials estimate that Greece could run out of money as soon as next month if Athens does not stick to the aid package terms, which kept the currency solvent and in the single currency bloc. The concerns hit other risky assets including Asian stocks and the euro.
"Markets are starting to build up risk-off positions. Euro and other risky currencies will drift lower thanks to Greece," said a senior Malaysian bank dealer in Kuala Lumpur. There was some market talk that European banks sold emerging currencies for repatriation as the euro briefly rose against some of regional units such as the won. Spain's government will demand its banks raise around a further 35 billion euros ($45.48 billion) more in provisions against sound loans in their property portfolios as it battles to assure problems in the banking sector are under control, financial sources close to negotiations said on Tuesday. Still, the declines in emerging Asian currencies are likely to be limited on expectations that central banks may intervene at some stage, dealers said. Indonesian central bank was spotted selling dollars to support the rupiah, dealers said. WON Dollar/won ended local trade at 1,140.4, higher than the 76.4 percent Fibonacci retracement at 1,140.3 of its April-May slides. As the retracement is cleared, it may head to 1,142, around previous highs. The next level would be 1,144.9, the high of April 12. Still, many dealers were doubtful over a further rise in the pair, given the possibility of dollar-selling intervention by the country's foreign exchange authorities. "I wonder how long it can stay there as the authorities may step in," said a senior foreign bank dealer in Seoul. Foreign investors were net sellers for a sixth consecutive session in Seoul's main stock market, by dumping a net 344.5 billion Korean won ($303.35 million). They unloaded a combined net 1.1 trillion won during the prior five sessions. RINGGIT
Dollar/ringgit earlier rose to as high as 3.0686 above a 100-day moving average, which currently stands at 3.0660, and the top of the daily Ichimoku cloud at 3.0650. The pair has been closing below the average since mid-January. But the pair retreated as local investors took profits. If it ends the day above the average, it may head to 3.0700, near its previous highs. The next target would be 3.0735, the 76.4 percent retracement of its March-May slide. SINGAPORE DOLLAR U.S. dollar/Singapore dollar edged higher as macro funds covered short positions, but local players sold it on rallies. There was market talk of the central bank intervening between 1.2510-1.2520, dealers said. The pair is also seen having resistance at 1.2528, the 50 percent retracement of its March-April slides. PHILIPPINE PESO Dollar/peso gained on short-covering, but remittance inflows capped its upside at 42.40, dealers said. A European bank dealer in Manila said it could rise more, but 42.50 would be strong resistance. TAIWAN DOLLAR
European and U.S. banks took dips in U.S. dollar/Taiwan dollar to buy the pair, dealers said. Some U.S. players initially were sellers before turning buyers, dealers added. Taiwan's central bank was spotted offering the pair around 29.340-29.350, while exporters joined the selling, according to dealers.