Asian currencies in free fall after Bernanke comments
Friday, 19 July 2013 03:48
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Reuters: The Indian rupee led the slide among emerging Asian currencies against the dollar on Thursday after Federal Reserve Chairman Ben Bernanke confirmed market views that the US central bank expects to start tapering monetary stimulus this year.
Regional stocks failed to maintain early gains, putting more pressure on currencies as concerns over financing available to property developers weighed on Chinese markets.
The rupee fell as investors looked to a planned open market operation sale of Rs. 120 billion from the central bank later in the day, in what is a key plank in its efforts to drain liquidity from the financial system to support the currency.
Leveraged funds sold the Singapore dollar. The South Korean won and the Indonesian rupiah slid on dollar demand from local companies.
Bernanke on Wednesday said the Fed still expects to start scaling back its monthly bond-buying of $85 billion a month later this year although he left open the option of changing that plan if the economic outlook shifted.
Earlier, some emerging Asian currencies gained as investors covered short positions, focusing on Bernanke’s pledge to keep policy accommodative for the foreseeable future.
But they turned weaker on sustained expectations the Fed will eventually reduce stimulus.
“Markets were quick to jump on comments that suggested a delay in QE taper off,” said Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur.
Ramanathan, however, expected emerging Asian currencies to fall further, saying any rise in regional currencies could be chances to sell.
“The prospects of getting into levels that were witnessed in the first quarter of this year is history. Markets need to learn to accept this structurally changed trading view,” he added.
In the beginning of this year, emerging Asian currencies had enjoyed capital inflows thanks to printing of easy money from major central banks.
Some traders and analysts still saw Bernanke’s comments as dovish, but they said emerging Asian currencies were unlikely to find much support.
BNP Paribas currency strategist Thio Chin Loo in Singapore said Bernanke was “rather dovish”.
Still, emerging Asian currencies will stay in a range as strong US economic data and rebounds in US yields will limit upside in regional currencies, she said.
The Singapore dollar fell on selling from leveraged funds and US investors.
The city-state’s currency came under further pressure from a weaker yuan mid-point fixing by China’s central bank, traders said.
The won turned weaker on South Korean importers’ dollar demands for payments.
Foreign investors sold Seoul shares, putting pressure on the currency, traders said.
“The won can weaken to 1,130 any time as investors will focus on the Fed policy shift’s impact on China,” said a senior foreign bank trader in Seoul, referring to the won’s value against the dollar.
“Bernanke is unlikely to make dovish comments anymore and the Fed appeared to have decided it would taper by the end of this year.”
The rupiah’s indicative prices slid 0.2% to 10,055 per dollar, the weakest since September 2009, on dollar demand from local companies.
But the rupiah traded weaker than the level with some bidding dollar above 10,200, traders said.
The central bank was spotted providing dollar liquidity around 10,060 to some banks to limit the rupiah’s downside, while some exporters bought the rupiah at much cheaper prices, they added.
Such dollar supplies were unlikely to stop the rupiah’s weak trend as foreign investors were looking to buy the greenback after recent bond sales and on month-end corporate dollar demand. Foreign investors reduced Indonesian Government bond holdings by one trillion rupiah between 8 and 15 July, official data shows.
“Exporters were selling dollars, but the amount was smaller than buyers in the market. The month-end demand is just big,” said a Jakarta-based trader.
