Fears of intervention subdue Asian foreign exchange markets

SEOUL (Reuters): Emerging Asian currencies were mixed on Tuesday, as caution over possible intervention by regional central banks seeking to stop their currencies firming too far deterred buyers.

Otherwise, the currencies could have struck a firmer tone against the Dollar, as risk appetite has improved on rising hopes that US lawmakers will strike a compromise on budget cuts to stop the economy running off a ‘fiscal cliff’.

South Korean authorities, for example, stemmed the won currency’s rise by buying Dollars just before the onshore currency closed, dealers said.

The won had earlier hit a 15-month high against the Dollar on exporters’ demand for settlements and foreign funds flowing into the stock market.

The won hit another 20-month high to the Yen, biting into South Korean exporters’ competitiveness against rivals in Japan.

Japan’s next Prime Minister Shinzo Abe has urged the Bank of Japan to adopt a more aggressive easing stance, pushing down the Yen across the board. The central bank is expected to ease monetary policy this week and consider adopting a 2% inflation target no later than in January, sources said.

The central bank is expected to ease monetary policy this week and consider adopting a 2% inflation target no later than in January, sources said.

Against the Dollar, the won was the best performing emerging Asian currency with a 7.4% gain so far this year.

Some of the won’s regional peers such as the Taiwan Dollar and the Thai baht could not extend gains despite exporters demand and inflows due to caution over intervention by central banks.

The Singapore Dollar eased on market talk that the central bank was spotted between 1.2190 per US Dollar and 1.2200, dealers said.

“The bias is still one of appreciation in Asian currencies, but it will be more measured. Most investors are wary of some macro prudential measures from Asian central banks,” said Enrico Tanuwidjaja, an Asia economist at the Royal Bank of Scotland.

The won ended domestic trading at 1,072.8 after hitting 1,070.7 per Dollar, its strongest since 8 September 2011. The South Korean unit also hit 12.7289 versus the yen, the firmest since April 11 last year.

But authorities’ intervention and importers’ Dollar demand reversed the won’s early gains, dealers said. “The won has no brake except intervention. But the authorities are expected to do their utmost to prevent further gains before the year-end,” said a foreign bank dealer in Seoul.

Caution over taking the won higher could leave it vulnerable to technical corrections against the Yen, traders said, although the South Korean currency is expected to stay firm against the Japanese unit in the longer term.

The Taiwan dollar gained on exporters’ buying and inflows from foreign investors, though some sold as share prices weakened.

The currency market hesitated chasing the Taiwan Dollar beyond 29.050 per US Dollar, over which the central bank is seen concerned, dealers said. Importers were also buying Dollars.

Still, the Taiwan Dollar firmed on Non-Deliverable Forward (NDF) markets, mainly due to hopes of success in the US budget talks.

The baht edged higher on exporters’ demand as well as inflows into Thai stocks and bonds. But investors remained wary of potential intervention to stem the baht’s strength.