July 16, 2012 / 7:33 AM / 5 years ago

EM ASIA FX-China stimulus hopes support Asia FX, Bernanke awaited

* Won up on exporters; one-yr Korean IRS rebounds
    * Rupiah down, but Moody's outlook affirmation relives
    * Some buy won, Sing dlr vs euro - dealers

 (Adds text, updates prices)
    By Jongwoo Cheon
    SINGAPORE, July 16 (Reuters) - Most emerging Asian
currencies rose on Monday on hopes that China will unleash more
stimulus to boost slowing economy growth, but investors were
reluctant to make big bets ahead of comments by the U.S. central
bank chief later in the week.
    The South Korean won also found support, with the country's
one-year interest rate swaps (IRS) slightly rebounding and on
demand from domestic exporters, while interbank players in
Malaysia lifted the ringgit.
    Some players bought regional currencies such as the won
 and the Singapore dollar versus the euro
to seek higher yields, dealers said.
    The Indonesian rupiah slid, bucking the firmer regional
trend, but currency pared early losses after Moody's Investors
Service affirmed its credit rating. 
    Still, investors were cautious ahead of Federal Reserve
Chairman Ben Bernanke's testimony to the U.S. Congress on
Tuesday and Wednesday, which could hint at more stimulus and
weigh on the dollar.
    "We hope that he will lay down greater detail on just where
the threshold is for QE, or at least hint at a bias towards or
against it," said Sacha Tihanyi, senior currency strategist for
Scotiabank in Hong Kong, referring to quantitative easing to
shore up the U.S. economy, Asia's major export market.
    "If he does hint that the threshold is close to being
achieved, we certainly see support for Asian FX via broad dollar
weakening," he added.
    The Fed last month took more efforts to keep long-term
interest rates low by announcing it would buy an additional $267
billion in long-term bonds while selling short-term securities
in a measure known as Operation Twist.
    The U.S. central bank, however, held off from launching a
third round of outright bond purchases that would expand its
balance sheet, a form of stimulus known as quantitative easing.
    A number of central banks around the world have cut interest
rates or eased policy in recent weeks to support fragile
economic growth.
    China's Premier Wen Jiabao said efforts to stabilise the
economy are working and the government will beef up steps in the
second half to boost policy effectiveness and foresight, the
official Xinhua news agency reported on Sunday. 
    The comments came after China posted its slowest growth in
more than three years in the second quarter. 
    But Bernanke is expected to repeat this week that the Fed
will carry out further easing only if necessary, many dealers
and analysts said.
    "He will save it now for the time when the U.S. economy is
sinking," said a senior dealer at a Malaysian bank in Kuala
Lumpur.
    "If he uses the QE3 now, he will have no ammunition left
when (U.S. President Barack) Obama gets re-elected," he added.
    
    SOUTH KOREAN WON
    The won rose, with a rebound in one-year IRS
 and on exporters' demand for settlements.
    But it pared earlier gains as some offshore funds such as
model accounts sold it and local importers bought dollars for
payments, dealers said.
    "The won was supported by expectations of China's further
easing, but it is expected to stay under pressure from a slowing
global economy," said a local bank dealer in Seoul.
    One-year Korean IRS rose to 2.9330 percent
from Friday's 2.9000, the lowest since October 2010, as some
investors saw its recent plunge as excessive.
    But many market players doubted if the country's interest
rate swaps could extend their rise, given expectations that the
central bank will cut rates further. Three-year IRS
 and five-year IRS fell further.
    "It will be very difficult to see a rebound (in swaps) due
to KRW rate cut views," said a senior swap broker at a foreign
brokerage house in Seoul.
    One-year basis spread against one-year cross-currency swap
rates narrowed to 130.3 basis points (bps), the
lowest since late 2007, indicating a smaller yield for foreign
investment in rates.
    
    INDONESIAN RUPIAH
    The rupiah weakened on local banks' dollar demand,
but found some relief after Moody's said the outlook for the
country's sovereign rating remained stable.
    The central bank was also spotted buying the rupiah through
state-run banks to prevent it from weakening past 9,500 per
dollar, dealers said.
    The Moody's announcement lifted Indonesian stocks and bonds,
while a custodian bank sold dollars, indicating foreign
investors bought the country's assets, dealers said.
    That also briefly helped the rupiah escape from the session
low of 9,485 per dollar to 9,475, but it headed back to the low
again on local banks' dollar demand.
    A Jakarta-based dealer said Moody's helped improve sentiment
on the rupiah, but dollar demand among domestic banks stayed
strong.
    Indonesian corporates are expected to buy dollars on dips
this month before holidays in August, the dealer added.
    
    MALAYSIAN RINGGIT
    The ringgit rose slightly in subdued trading as
interbank speculators reduced dollar holdings versus the
Malaysian currency and on firm stocks in Kuala Lumpur.
    Still, local investors sold the ringgit on rallies both
against the dollar, while maintaining a bearish stance on the
local unit versus the Singapore dollar.
    
  CURRENCIES VS U.S. DOLLAR   
  Change on the day at 0705 GMT
  Japan yen        78.98          79.27       +0.37
  Sing dlr        1.2652         1.2655       +0.02
  Taiwan dlr      29.988         30.015       +0.09
  Korean won     1147.03        1150.30       +0.29
  Baht             31.61          31.65       +0.13
  Peso             41.89          41.98       +0.21
  Rupiah         9485.00        9440.00       -0.47
  Rupee            54.90          55.14       +0.44
  Ringgit         3.1750         3.1845       +0.30
  Yuan            6.3781         6.3789       +0.01
 
  Change so far in 2012
  Currency    Latest bid  End prev year    Pct Move
  Japan yen        78.98          76.92       -2.61
  Sing dlr        1.2652         1.2969       +2.51
  Taiwan dlr      29.988         30.290       +1.01
  Korean won     1147.03        1151.80       +0.42
  Baht             31.61          31.55       -0.19
  Peso             41.89          43.84       +4.66
  Rupiah         9485.00        9060.00       -4.48
  Rupee            54.90          53.08       -3.32
  Ringgit         3.1750         3.1685       -0.20
  Yuan            6.3781         6.2940       -1.32
    
(Additional reporting by Yena Park in SEOUL and IFR Markets'
Catherine Tan; Editing by Kim Coghill)
 
   
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   Taiwan dollar       Hong Kong dollar   
   Philippine peso      Korean won         
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