EM ASIA FX-Won drives Asia FX lower on "currency war" signs

Mon Jan 28, 2013 1:21pm IST

* S.Korea c.bank boosts rhetoric against QE spillover
    * Won ends at 3-mth low on offshore funds, stock outflows
    * Taiwan dlr hits 4-mth low on foreign financial outflows

 (Adds text, updates prices)
    By Jongwoo Cheon
    SINGAPORE, Jan 28 (Reuters) - The South Korean won suffered
its largest daily fall in 16 months, leading a slide in emerging
Asian units spurred by  views that some regional authorities may
want softer currencies  to protect exports and economies as the
yen falls. 
    The won fell as offshore funds sold it and Seoul
shares. A member of the South Korean central bank policy
board ramped up its warning against a possible surge in capital
inflows as a result of the ultra-loose monetary policy led by
the advanced economies. 
    The Taiwan dollar slipped to its weakest in more
than four months on stock outflows on selling by foreign
financial institutions. In Indonesia, dollar demand by importers
hit the rupiah.
    "There could be some further pullback in Asian FX. A higher
dollar/yen will drag the rest with it and Asian central banks
will be happy to see some local currency weakness," said a
senior U.S. bank trader in Singapore.
    The dealer also expected a "reasonable chance" to see a
change in the appreciation trend of emerging Asian currencies.
    Until recently, regional units were major targets of
investors looking for higher yields with cheap money printed by
major central banks, especially the Bank of Japan.
    Japanese Prime Minister Shinzo Abe urged the BOJ to hit its
inflation target as soon as possible, keeping up pressure on it
to make good its promise of bolder action. 
    Reflationary economic policies to fight deflation had pushed
up some emerging Asian currencies to multi-year highs earlier
this month.
    That created headaches among authorities in other Asian
countries as some, especially South Korea, lost price
competitiveness and profitability in export markets, although
the won was still cheaper than the yen and the dollar were
before the 2008-2009 global financial crisis.
    Other Asian countries have seen increasing hot money
inflows.
    On Saturday, Bank of Korea Governor Kim Choong-soo said
Japan's monetary easing had "created problems." 
    Last week, China's foreign exchange regulator warned of
speculative capital inflows. 
    "The currency war story is starting to grab some attention
and people are buying dollars ahead in anticipation of weakening
of Asian currencies to catch up with the yen," said a European
bank dealer in Manila.
    "With Western economies already starting to show some green
shoots and bottoming out of their economies, Asia would be seen
as a bit expensive right now, unless it closes the gap through
weakening of its currencies," the dealer said.
    Investors may buy the euro against emerging Asian
currencies, he added.
    Most regional units fell against the single currency,
although dealers have not spotted such trades yet on a large
scale.
    
    WON
    The won ended the local trade down 1.7 percent, its largest
daily percentage fall since Sept. 26, 2011, Thomson Reuters data
showed. The domestic closing of 1,093.5 to the dollar was the
weakest since Oct. 30 last year.
    Offshore funds sold the South Korean currency with some
stop-loss dollar buying spotted, while local importers joined
the dollar bids, dealers said.
    Foreign investors reported their largest daily stock sales
in 16 months and custodian banks bought dollars.
    Some currency dealers said the won's slide may accelerate
repatriation from the country's stocks.
    "We'd better prepare for a level of 1,100 soon," said a
senior foreign bank dealer in Seoul.
    But some investors looked to buy the won on dips, given
South Korea's current account surplus.
    Westpac said the won's weakness could be a good chance to
buy it.
    "A spot move towards the 1,100 level is where we would look
to initiate a short position in the 1-month NDF, with a stop
closer to the 1110 level," Westpac said in a note, referring to
one-month dollar/won non-deliverable forwards.
    The NDFs rose 0.9 percent to 1,093.0.
    
    TAIWAN DOLLAR
    The Taiwan dollar touched 29.570 to the greenback, its
weakest since Sept. 14 as foreign financial institutions sold
it.
    The island's currency also came under pressure from stock
outflows with foreign financial institutions reluctant to hold
Taiwan stocks before long holidays in early February for the
Chinese New Year. Taiwan's financial markets will be closed
between Feb. 7 and Feb. 15.
    Local importers chased the U.S. dollar for payments on
expectations for it to rise further.
    But exporters took out bids for the Taiwan dollar although
the month-end is approaching, dealers said.
    
    RUPIAH
    The rupiah's indicative prices slid 0.5 percent to 9,690 per
dollar, while it traded at levels around 9,790-9,800, dealers
said.
    The Indonesian currency was under pressure from dollar
demand by local importers, while the central bank was spotted
providing dollar liquidity at lower levels such as 9,675,
according to traders.
    On Friday, Bank Indonesia said it had no plans to introduce
new instruments to deal with the rupiah's weakness and would
continue to intervene in the market where necessary.
 
    
    PHILIPPINE PESO
    The Philippine peso weakened, tracking other Asian
currencies and as investors covered dollar-short positions.
    Earlier, the peso found some relief thanks to remittance
inflows but then the extended slide in other regional currencies
prompted investors to unwind dollar-short positions.
    
  CURRENCIES VS U.S. DOLLAR
  Change on the day at 0743 GMT
  Currency    Latest bid   Previous day    Pct Move
  Japan yen        90.81          90.86       +0.06
  Sing dlr        1.2380         1.2342       -0.31
  Taiwan dlr      29.534         29.250       -0.96
  Korean won     1093.10        1074.50       -1.70
  Baht             29.95          29.89       -0.20
  Peso             40.83          40.66       -0.40
  Rupiah         9690.00        9645.00       -0.46
  Rupee            53.84          53.68       -0.30
 *Ringgit         3.0430         3.0430       +0.00
  Yuan            6.2233         6.2205       -0.04
 
  Change so far in 2013
  Currency    Latest bid  End prev year    Pct Move
  Japan yen        90.81          86.79       -4.43
  Sing dlr        1.2380         1.2219       -1.30
  Taiwan dlr      29.534         29.136       -1.35
  Korean won     1093.10        1070.60       -2.06
  Baht             29.95          30.61       +2.20
  Peso             40.83          41.05       +0.55
  Rupiah         9690.00        9630.00       -0.62
  Rupee            53.84          54.99       +2.14
  Ringgit         3.0430         3.0580       +0.49
  Yuan            6.2233         6.2303       +0.11
 * Financial markets in Malaysia were closed for a holiday.

 (Additional reporting by Miao-jung Lin in TAIPEI and IFR
Markets' Catherine Tan; Editing by Richard Borsuk)
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